I am bullish on Amazon (AMZN) as it has strong upside potential, a large moat, a discounted valuation, a unanimous uptrend on Wall Street, and substantial upside potential against its one-year price target.
Amazon is one of the biggest companies in the world and has a long history of growing from a humble online bookstore to arguably the most powerful e-commerce company in the world which now also has a thriving cloud technology business, among other companies.
Its iconic founder, Jeff Bezos, has created relentless growth and an innovative culture within the company and now has a very talented team in place to ensure the future success of the company as it turns more in addition its attention towards its society of space exploration.
AMZN enjoys huge economies of scale, an army of world-class employees, growing technical prowess, a vaunted army of assets and logistics networks, a massive network effect in its market in line that includes major e-commerce and retail merchants, and an army of Amazon Prime subscribers that now number in the hundreds of millions.
Going forward, the company is increasingly relying on this vast network of subscribers as well as its enormous treasure trove of consumer and retailer data.
These factors will help AMZN build artificial intelligence models to maximize the monetization and retention of its member network, which, in turn, results in increasingly loyal customers and drives the pricing power of Amazon Prime. Over time, this should create a very lucrative and stable revenue stream for the business.
AMZN recently reported strong fourth quarter results. Net sales increased 9% to $137.4 billion in the quarter. They increased by 10% year-on-year at constant exchange rates. However, operating profit fell nearly 50% to $3.5 billion from $6.9 billion in the same period last year. That said, net income nearly doubled year over year to $14.3 billion ($27.75 per diluted share), from $7.2 billion, or $14.09 per share. diluted, in the quarter of the previous year.
A key driver of the company’s fourth-quarter success was its biggest holiday shopping weekend from Black Friday to Cyber Monday, as its apparel, beauty, home and toy categories grew. led the charge. The company now has an army of over 200 million Prime subscribers across the world.
AMZN stock currently looks attractively priced. It is currently trading at a forward EV/EBITDA ratio of 17.2x, which seems quite reasonable compared to its historical average of around 23x. Moreover, its normalized price-to-earnings ratio of 56x is well below its historical average of 99x.
The Taking of Wall Street
According to Wall Street analysts, AMZN gets a strong buy consensus rating based on 34 unanimous buy ratings given over the past three months. Additionally, Amazon’s average price target of $4,218.56 puts the upside potential at 54.4%.
Summary and conclusions
Amazon is a leading global company with a powerful moat and a historic track record of generating massive growth. Wall Street analysts are unanimously bullish on the stock here, and its mid-price target implies substantial upside potential over the next 12 months.
Moreover, its valuation multiples seem discounted compared to its historical averages while its growth potential remains good.
Given the relatively low risks involved here, it seems like it might be a good time to add stocks here. That said, no bet is without risk, so investors probably shouldn’t over-allocate to AMZN stocks here.
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