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Amazon Ripping the Shorts

The online retailer's recent surge has Wall Street heads spinning.

Updated from 9:32 a.m. EDT

Wall Street can't get enough of

Amazon.com

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right now -- just as it couldn't get far enough away from the online retailer's stock a few months ago.

Shares of Amazon gained 0.85% in trading on Tuesday, adding to Monday's hefty 7% gain. The stock has risen 50% in the month since Amazon beat first-quarter earnings targets, leading to a rout of investors who were skeptical about Amazon's growth prospects.

This week's rally was triggered in part by bullish reports by Wall Street analysts at Jackson Securities and Citigroup, who now see the stock positioned for even further gains even in the wake of enormous recent spikes.

For the year, Amazon is by far the best-performing big-cap Internet stock and has already tacked on more than 70%. Shares of the decade-old e-commerce company have now gained a staggering 165% from last July's lows, creating $17 billion in market value along the way.

But if Jackson Securities analyst Brian Bolan is right, the stock still has almost 20% to go over the next 12 months since he initiated coverage on it Monday with a $75 price target. Bolan rates the stock a buy.

"Investors were certainly impressed with the execution that Amazon exhibited in the first quarter of 2007," Bolan wrote. "Continued similar execution will lead to dramatic earnings per share increases and thus is likely to push the stock even higher."

Still, there is a lot more than "execution" that caused investors to flock to Amazon. The company said that it would finally rein in spending growth on technology and content. High-margin third-party sellers continued to adopt its platform internationally. Amazon stands to benefit from a favorable product mix, including the release of a Harry Potter title and a busy summer movie season, which helps DVD sales down the line.

There is also the relative stagnation of other Internet players, such as

Google

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,

Yahoo!

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(YHOO)

,

eBay

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and

IAC/InterActiveCorp

(IACI)

over the last couple of months -- which makes Amazon all the more attractive to investors interested in the sector. And of course, there was the heavy short position in the stock, at least going into April's earnings blowout.

Execution, in other words, may be a term that justifies whatever it is that drives Amazon's stock price up. And a lot of what's driving the stock, meanwhile, is a self-feeding cycle in which the rising stock price features prominently.

"Current estimates for Amazon are likely too low, as we are among the most aggressive on Wall Street," Bolan wrote. "But we believe that estimates will rise soon, which in turn, should push the stock price higher."

With the stock already expensive at 54 times forward earnings, Bolan forecasts that Amazon will trade at a multiple of 70.

Citigroup analyst Mark Mahaney also joined the fray on Monday, raising his price target for the stock to $67. That's a sharp 30% increase from the $51 price tag Citigroup previously had on the stock. That, in turn, was a jarring 55% hike over the $33 price that got upped less than a month ago, on April 25. Citigroup makes a market in Amazon shares.

Citigroup's reasoning for determining the drivers of the stock price, meanwhile, may be even more circular. Among the reasons that the brokerage could become more bullish about the stock? "A material decline in the share price from these levels." And reasons to be bearish? "A material surge in the share price from these levels."

That rationale seems to dovetail nicely with the firm's hold recommendation on the stock. Still, that hold recommendation has been maintained through Amazon's incredible run -- and on the backs of two dramatic price target increases.

But Citigroup research policy states that a stock with Amazon's risk profile should be rated a buy if gains are expected to be larger than 20%. And recommending buying the stock could be awkward given it was rated a sell before its blowout quarter and ensuing positive momentum.

All of which means investors should take pause before piling into the cyclone of Amazon's rising stock price, bullish analyst sentiments and subsequent rises.

Of course, if the expensively priced Amazon were to slide back to more-modest levels, that could be explained as well. Chalk it up to poor execution.