- Analysts seem to be competing when the question comes to a price target for Amazon.com stock.
- Teams from RBC capital markets and Evercore ISI recently hiked their Amazon price targets to $1000 levels.
- Does the company have the ammunition to drive Amazon stock to $1000 levels?
Amazon.com Inc. (NASDAQ:AMZN) stock price is up nearly 15% in the year to date, closing the last trading session at a price of $789.74 and a market cap of nearly $377B. The stock has more than tripled the gains by the Nasdaq Composite (INDX:COMPX) index, which is up 4.5% in the same time frame. What's even more impressive is that the 2016 rally comes on the back of a 118% rally in 2015. A $10000 investment at the beginning of 2015 would be worth nearly $25600 (at the Sep 21 closing price). Impressive gains indeed. But is now the right time to take profits following the gains made by the stock?
Is it time to book profits in Amazon stock?
Huge run ups in stock prices often lead to the question of whether or not to book profits. So should you book the 15% gains from 2016? While this definitely might be a temptation for a large number of investors, analysts at RBC capital and Evercore ISI seem to differ, giving the firm price targets of $1000 or above.
Also read: AWS Can Do Wonders For Amazon.com Inc. Stock
Mark Mahaney from RBC capital upped his price target to $1000 from the earlier $840, citing the potential of Alexa, Amazon's artificial intelligence voice assistant. He also picked Alexa as the fourth potential pillar for Amazon alongside retail, Amazon prime and AWS. Quoting the analyst, courtesy Barron's:
"Today, we’re highlighting a 7th candidate, Alexa – Amazon’s Artificial Intelligence Voice Assistant."
"Our sample size is arguably too small to draw very strong conclusions, but Alexa’s ability to become an ecosystem and either generate meaningful operating income or accelerate Amazon’s Retail flywheel could indeed make it Amazon’s 4th Pillar."
He also noted that the usage will rise as Alexa grows its skillsets:
"as Alexa’s Skills Library grows and more devices are “Alexa-enabled,” we expect to see a corresponding rise in consumer usage. The value to the consumer (and to Amazon) increases as the Alexa community grows."
Mahaney also noted that while awareness of 'Alexa' and Echo, Amazon's Alexa enabled devices is low, both of them seem to be gaining traction with Amazon users.
In a separate news, Evercore ISI analyst Ken Sena upped his target price to $1015 from $930, while maintaining a 'buy' rating. Sena believes Amazon can leverage automation and machine learning not only with respect to 'Alexa' but also to drive audience conversion and improving warehousing and delivery which could lead to huge savings. He wrote:
"Studies we have collected show automation savings to the tune of ~10-25% (or in the case of autonomous delivery, if you want to think a little further ahead, up to 80% per unit). And as this trend unfolds, we believe larger addressable markets, both categorically (i.e. food, where we peg the TAM at >$500bn) and geographically in markets such as India will increasingly open."
The analyst community does converge with the bullish tones of the recent upgrades, with the current analyst consensus target price for Amazon at $870.33, a good 10% higher than the last closing price.
Can Amazon stock price rise above $1000?
A $1000 stock price would put Amazon's market cap just over $477B, putting it ahead of Microsoft Corporation (NASDAQ:MSFT) as the third most valuable company after Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG). But a $1000 price tag would also mean that the Amazon stock could be trading at 'even more' steep valuations. Amazon stock currently trades at a TTM (trailing twelve months) earnings multiple of 196x, making it a highly risky stock at a first glance. However, Amazon's earnings are growing rapidly. Given the fact that the company has turned in 5 consecutive profitable quarters, Amazon's earnings growth could be here to stay. Amazon's TTM EPS is up to $4.01 from a 43 cent loss in the year-ago period. Since Amazon is rapidly growing its earnings, forward valuations would be the right way to look at this stock.
Also read: Amazon Stock Will Surpass $1000 A Share
Analysts, on average, expect the company to report an EPS of $10.4 in FY 2017. Using the 5-year expected earnings growth of over 50%, implied FY 2020 EPS comes in at $35.52. Working off a PEG of 1 (ideal), a PE multiple of close to 50 should be attainable for Amazon. A $1000 price target implies a forward earnings multiple of 28X based on estimated FY2020 EPS. Well, a 28X multiple does definitely look better than today's 196X multiple, which means Amazon stock could outgrow its current valuations and rise above $1000.
Mark Mahaney from RBC capital and Ken Sena from Evercore ISI recently upped their Amazon.com price targets to $1000 or above while reiterating their buy/outperform rating. While the new price targets do seem to imply steep valuations, the earnings growth trajectory of Amazon is on track to outgrow these valuations. Also, Amazon.com stock is trading well above its key 50 and 200 period moving averages, with the daily as well as weekly chart implying a strong uptrend. Hence, investors should hold booking profits now or could miss out a further big rally in Amazon stock price.