With just a 2.5% gain on the year to date, versus a 29% gain for the S&P 500, Amazon (AMZN) stocks have not outperformed this year than they did in 2020 (when Amazon stocks made 74% gains). If you already own Amazon stock, it has probably been a bit of a disappointment for you.
But if you don’t own Amazon stock, well, RBC Capital analyst Brad erickson think it might be an opportunity.
After last year’s jaw-dropping run, and this year’s pretty flat performance, Amazon stocks have a sky-high market capitalization of ~ $ 1.7 trillion, and yet, when starting to hedge the stocks, Erickson argued that even With this high price, Amazon can still “outperform” the market. In fact, he anticipates that within a year, Amazon shares will reach $ 4,150 each and bring 26% profit to new buyers. (To view Erickson’s history, Click here)
What makes Erickson so optimistic about Amazon?
Well, there is the obvious, of course: “AMZN is one of the true largest alpha dogs on the internet, in our opinion,” writes the analyst, with “unmatched scale and advantage in top-down e-commerce combined with its business of industry-leading cloud “and a” burgeoning ad business “on top of all that. Although with $ 443 billion in annual sales, Amazon is already quite a big business, Erickson notes that there are still “trillions of dollars of [retail sales being conducted in physical stores offline] left to change online. “
So in retail alone, Erickson believes investors can look forward to “years of growth and likely equity gains” and as those gains pile in, Amazon “will drive more advantages of compound scale, margin expansion, earnings growth and [have opportunities to expand] into new adjacent verticals. “Beyond that, the analyst sees opportunities for Amazon to grow its” Prime, AWS and Advertising “businesses.
Advertising, especially. “Amazon’s advertising is early and under-penetrated,” Erickson argues, and perversely, he also cites “industry contacts” who criticize Amazon’s advertising business for “below-average” performance and poor performance. “measurability” of the effectiveness of your ads as an asset for action. Because if Amazon’s advertising business currently seems somewhat broken, this means that the company has a chance to fix it, improve it, and make it even more profitable in the future.
But what about regulatory risk? Isn’t Congress looking to split Amazon, or at least slow it down so other companies can compete with it?
Well, yes it is, and Erickson acknowledges it. Still, he considers regulatory risk to be “low” and assumes that Congress will not want to set a “precedent” of “regulators arbitrarily limiting the ability of a particular business unit of a single company to finance another.” (Although that could be a first for Standard Oil, Ma Bell and Microsoft …)
However, in the worst case scenario, if Congress demanded that Amazon secede, Erickson says it “wouldn’t matter too much [because] some kind of consumer / business division would likely remain owned by the same shareholders, ”and collectively, a collection of separate companies formerly owned by Amazon would continue to collectively generate“ strong margins and cash flow ”for investors.
Ultimately, Erickson concludes that “we see no reason why growth of 15% or even faster is not possible. [for Amazon] over the next 3-5 years, ”leaving investors pondering only the question of whether 15% growth is enough to justify Amazon’s 60x P / E ratio.
Overall, Amazon has a rare bullish outlook according to The Street. TipRanks reveals that in the past three months, Amazon has received no fewer than 32 buy ratings, earning it a Strong Buy analyst consensus. Meanwhile, the average price target of $ 4,212.39 translates into a potential upside of 28% from the current share price. (View AMZN stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.