Amazon stock (AMZN) - Get Free Report is worth short of $3,300, nearing the bottom of Wall Street’s recent recommendations rather than the top. Edward Yruma, from KeyBanc, targets AMZN stock at $4,000, while Mark Mahaney, from Evercore ISI, sets his projection at $4,700. Average target price is $4,219 according to the top 30 best performing Wall Street analysts on Tip Ranks.
Despite a wide range of price targets on Amazon stock, not a single analyst supports a sell or a hold — consensus is a strong buy. Today, the Amazon Maven debates why AMZN has not reached its peak yet, despite broad-based bullishness, while we dig deeper into each of these experts' opinions.
(Read more from the Amazon Maven: Amazon Stock: Here’s What Investors Should Do In October)
Solid for the long term...
Among the most recent reports on Amazon, stock analyst Edward Yruma has one of the lowest price targets on the shares: $4,000, representing upside potential of 16%. According to Mr. Yruma:
“Amazon is the leading company across retail [and] across technology, but ultimately this is one of these very typical investment cycles for Amazon: it can go on for many quarters and we think ultimately we are not seeing the earnings catalyst we’re looking for to get more constructive on the stock.”
On the other hand, Mark Mahaney has recently raised his fair value estimate to $4,700 from $4,200, implying an upside of 36%. The analyst says:
“It’s pretty much the average multiple the stock has traded for the last couple of years. I do want to throw a warning, though. Amazon is aggressively investing and one of the negative surprises is the outlook of margin declines. [...] If Amazon is ramping on all this distribution capacity, one of the first order impacts could be margin pressure before you get that revenue reacceleration, so I do worry for the near-term”.
...as Amazon keeps innovating
Bank of America’s Justin Post is positioned between the two analysts above. The analyst reaffirmed his buy recommendation on Amazon after the announcement that the Seattle-based company is developing its own point-of-sale system, in response to Shopify and PayPal's own solutions for small businesses (SMB).
“The ability for SMB merchants to capture direct online sales, off of marketplaces, is a long-term potential threat to Amazon. So, we expect Amazon to offer a feature rich product with deep integration with Amazon’s marketplace, fulfilment, checkout, and payments processing capabilities (with a possible discount on payments processing).”
Why so far from its peak then?
The top Wall Street analysts recommend buying Amazon stock, but shares have not gone anywhere in the past couple of months. The Amazon Maven speculates that there are two main reasons why the e-commerce titan is still suffering the consequences of its most recent, ill-received earnings report.
The first is fear of overly optimistic expectations on the digital channel that may still linger from a pandemic-stricken 2020. E-commerce growth may be impacted by COVID-19, especially if consumer demand returns quickly to brick-and-mortar as social restrictions ease further.
Second, macroeconomic worries continue to weigh on the markets. Inflation has pulled back, but supply chain disruption still exists. Yields continue to rise, which tends to be bad news for growth stocks like Amazon.
True, analysts remain constructive on AMZN. But, as explained in an article written by Wayne Duggan, equity researchers may not be as objective as they should be in their assessments. Investors seem unwilling to blindly follow Wall Street’s lead in this case, which helps to explain recent share price softness.
There seems to be a discrepancy: Wall Street collectively thinks that Amazon stock should be worth about 30% more, but shares remain in a drawdown since the start of July. Are analysts too optimistic?
Is the price right?
Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.
Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a free trial.
(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)