A new report from FTI Consulting has been released. According to the advisory firm, e-commerce is likely to thrive well beyond the COVID-19 crisis, which triggered “stay at home” consumer habits. Among the winners and losers, Amazon stands out as a clear beneficiary.
The Amazon Maven explains how these trends are likely to benefit Amazon stock (AMZN) - Get Report in the long run – even if tough pandemic comps might still put some pressure on shares in the immediate term.
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FTI estimates that US online sales will grow to $865 billion in 2021, a 13% improvement over a pandemic year that was ideal for e-commerce. The low-teen increase suggests that consumers will not return to old habits that favored brick-and-mortar stores, redefining at last how Americans shop.
E-commerce is benefiting not only from the pickup in economic activity following the “flash recession” of 2020, but wallet share is rising as well. The digital channel is expected to account for over 20% of total 2021 retail sales in the US, higher than last year’s 19% and only 15% in 2019.
While the numbers above impress, e-commerce still has a long runway ahead. With only one-fifth of US retail sales happening online, it is not hard to imagine e-commerce expanding at a double-digit pace for at least a few more years. And internationally, the growth story has barely started to unfold.
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Amazon will be a winner
The Seattle-based e-commerce giant should be a beneficiary of the shopping trends. Currently, Amazon is the undisputed leader in the US, controlling nearly 40% of the digital retail market (see chart below). I have recently explained how the company’s aggressive investments in fulfilment will likely ensure that it remains the king of e-commerce for several years to come.
FTI provided clues that the success story will likely be evident as immediately as the current quarter. The research firm says that nearly two-thirds of Amazon Prime subscribers will spend more on Prime Day 2021 than they did during last year’s event. Only 9% plan on spending less.
These Amazon shopaholics also confirm that stay-at-home habits are likely to remain in place. Over 40% of them indicate that they will shop online as often as they did during the pandemic. Another 25% say that they will spend no less in 2021 than they did in 2019. This is a big win for Amazon.
But expect short-term headwinds
The Amazon Maven sees enough evidence that Amazon’s financial performance will remain robust in the foreseeable future. As a result, Amazon stock should benefit, even at current-year P/E of 63 times that looks rich today – the multiple drops to a much more affordable 20 times projected 2025 earnings.
However, it is possible that Amazon shares might feel short-term pressure due to tough comps. First, the chart below shows how growth in e-commerce will look a bit soft in 2021 relative to the pandemic year and even 2019. This could be a turnoff for certain investors in the near term.
Second, keep in mind that Amazon stock has not traded very well immediately after Prime Day: one-month gain of 1% vs. a base-case average of 3%. The selloff pressures could be even more pronounced in 2021, since AMZN has climbed 8 percentage points above the S&P 500 in the past two weeks alone.
Still, for most buy-and-hold investors, the potential challenges faced by the stock in the next few weeks or couple of months should not distract them from the more important long-term story, which remains highly bullish.
Prime Day ends today. What do you think Amazon’s sales for this year’s event will look like? Leave your opinion below and follow @AmazonMaven on Twitter!
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)