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Amazon Stock Nears All-Time Highs: What To Do Next

Amazon stock is flirting with all-time highs, after nearly 10 months underwater. Here is what investors should consider before buying or selling shares near peak price.

It has been 293 calendar days – and still counting, for now. Amazon stock (AMZN) has not been able to reach all-time highs since early September 2020, but the spell is about to be broken. Shares ended the June 22 session priced at $3,505, only 0.7% below the $3,531 peak of nearly 10 months ago.

With the milestone within sight, the Amazon Maven discusses what investors should do now: buy AMZN on momentum, or stay away on ramping valuations?

Figure 1: Amazon logo in a box.

Figure 1: Amazon logo in a box.

Read more from the Amazon Maven: E-Commerce is On Fire, Amazon Stock Should Benefit

The bearish view

There are a few reasons for investors to be wary of Amazon at current levels. From a price perspective, the nearly 10% rally of the past two weeks is tied for the sharpest gain since July 2020. Those who did not buy AMZN below $3,200 only a few days ago may have passed on a decent upside opportunity.

On a related subject, Amazon shares have historically performed more poorly than average in the month following Prime Day – the likely result of “sell the news” pressures. Since shares have climbed so far in the days leading to the June event, the headwinds could be even more pronounced this year.

From a business fundamentals perspective, Amazon remains in the crosshairs of the government on matters of antitrust. The company is at risk of being more heavily regulated, and bearish developments on new antitrust legislation could surface at any moment.

Lastly, Amazon shares have enjoyed the highly favorable macroeconomic and market environment of today: a recovery leading to strength in e-commerce, coupled with declining rates that are bullish for the stock and stable asset prices. It is unclear, however, how much longer this period of calm will last.

Read more from the Amazon Maven: It’s Prime Day: What Wall Street Thinks Of Amazon Stock

Thinking long-term

Having said the above, there are at least as many reasons to buy Amazon stock today, even near a historical peak. First, valuations can be misleading at first glance. Despite share price having risen quite a bit lately, current-year P/E remains largely flat versus the end of Q1.

AMZN currently trades at a current-year earnings multiple of 65.8 times. As of March 31, the multiple was only a bit lower, at nearly 64 times. The “catch”: earnings projections for 2021 have increased almost as fast as the stock price, keeping valuations largely stable.

Take a step back and notice how multiples have, in fact, compressed in the past 12 months. The graph below shows that all major valuation metrics look more compelling now than they did in June 2020 – by quite a bit, in most cases.

Figure 2: AMZN historical valuation multiples.

Figure 2: AMZN historical valuation multiples.

Then, there are the undeniable secular trends that are highly favorable to Amazon. It all starts with an e-commerce business that is on fire in the US, and that has yet to catch on more meaningfully abroad. In addition, Amazon will likely be a key beneficiary of the ongoing transition to cloud through AWS.

The two bullish arguments above can be combined into one “theory of everything” that supports a buy of Amazon stock today. Should the cloud and e-commerce giant grow earnings at the expected pace, and assuming today’s share price, AMZN will trade at a very depressed P/E of 20 times 2025 EPS.

Unless Amazon gives up its position of leadership in cloud and retail in the next few years, this looks like quite an investment opportunity.

The Amazon Maven’s verdict

I have presented above both sides of the argument without clearly picking one of them. This is by design: I believe that Amazon stock could very well ebb and flow in the short term, possibly resisting to climbing much further from the most recent peak.

However, I also think that long-term investors are more likely to benefit from buying AMZN today – provided that they hang on to their position for at least a few years to ride out any potential short-term drag to share price.

Twitter speaks

Amazon stock is inches away from reaching all-time highs once again, nearly 10 months after the previous peak. What is the best course of action from here?

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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)