Amazon (AMZN) - Get Amazon.com, Inc. Report stock is of one Wall Street’s favorite bets for 2022. Shares have been on many analysts’ radars, and the company has received strong buy ratings from Goldman Sachs, Wells Fargo, UBS, Cowen & Co, and Evercore ISI.
Now, Monness Crespi Hardt has joined the Amazon bull club too. One of their analysts, Brian White, has set a price target for the stock at $4,500 (that would imply a 33% return, given the current share price).
What’s White’s main thesis? The e-commerce king may be ready to turn into the cloud king — and cloud storage and computing is a far more profitable realm than e-commerce.
(Read more from Amazon Maven: Amazon Stock Makes It To Another 2022 Top Pick List)
AMZN back from the ashes…
Mr. White believes AWS holds the key to Amazon’s growth in the near future. The Seattle-based company has been heavily expanding its cloud services branch through the years: its 200 fully-featured services are now available across 245 different countries and territories.
Some of the world’s biggest and most influential companies, including Netflix, McDonald’s, BMW, and Facebook, are themselves AWS customers. In fact, Amazon’s cloud services customer list is long enough to place AWS at the top of its industry - AWS holds nearly a third of the entire cloud services market share.
This market dominance all but guaranteed Amazon’s profitability in 2021, and the trend will likely strengthen into 2022. Brian White notes that "Over the years, AWS expanded its reach well beyond the regions and availability zones of its core public cloud, with solutions that support on-premises, IoT, rugged edge, and The Next Frontier (e.g., AWS Ground Station for taking satellite data into AWS) workloads."
E-commerce could respond
Amazon’s most known business - e-commerce - is also the main reason its stock has stayed put during 2021, even as other giant tech names saw massive run-ups. Amazon had to significantly increase its operating expenses to keep up with post-pandemic supply-chain constraints and wage gaps. But 2022 could be the year when Amazon gets to harvest some gains from its costly investments.
According to Mastercard SpendingPulse, retail sales, excluding automotive, jumped 8.5% year-over-year from November 1 to December 24, 2021 - online sales leaped a full 11%. We’ll see how much Amazon stands to benefit from this increased consumer spending during its 2021 Q4 earnings call. It may well be the case that inflationary woes will not stop e-commerce growth in 2022.
Poised to rally
After an outstanding rally in 2020 and a disappointing performance in 2021, Mr. White is placing his bets on an Amazon bull run in 2022. In his view, “Amazon is uniquely positioned to exit this crisis as one of the biggest beneficiaries of accelerated digital transformation.”
The analyst justifies his $4,500 price target by arguing Amazon’s investments artificially lowered its profitability; he believes the company is still far off from its long-term potential. “Therefore,” White explains, “we believe traditional P/E metrics are not applicable, nor other profit metrics, [and] thus we value the stock on an enterprise-value-to-revenue ratio.”
Is the price right?
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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)