Amazon.com, Inc. gave back a bit on Tuesday after gaining 3.68% to close at $683.85 on Monday. The stock is close to crossing the $700 milestone. Shares of the firm soared on Monday after the stock had an explosive 10% gain on Friday because Wall Street was impressed with its better than expected first quarter (Q1 2016) earnings.
Amazon is in the midst of an amazing rally; the stock has recorded 61.75% gains in its share price in the last one year as shown in the chart below. However, the stock started 2016 on a weak note and its year-to-date gain is a mere 1.20% as seen in the chart below.
You’ll observe that the shares of Jeff Bezos’ firm are up 1.20% in the YTD, but its performance is below the 1.83% gains in the S&P 500 and the 2.68% gains in the Dow Jones. However, the stock has soared after the rally that the general equities markets started enjoying in February; the stock has gained almost 45% from February to date.
Here’s what analysts think about the prospects of Amazon
Analysts are optimistic about the prospects of Amazon going forward. To start with, the consensus price target suggests that the stock will run to $800 per share to mark a 16.98% upside from its current trading price.
Analysts are particularly impressed with the rate at which the firm is entering news businesses such as the fashion retail business – the firm recently bought up a range of fashion brands. Cowen analyst, John Blackledge opines that Amazon could become the biggest fashion retailer in the U.S. by 2017.
Another analyst, R.J. Hottovy of Morningstar notes that growth into new business lines and marketing initiatives such as free shipping will yield returns for the firm going forward. Blackledge says, “The biggest investment risk with Amazon is Jeff Bezos’ brain. It all depends on how aggressive Amazon wants to be… As long as Amazon’s investments build the user base, then I still think there is some upside to the stock.”
Michael Pachter, an analyst with Wedbush Securities agrees that the stock might be somewhat pricey even as it trades with a PE of almost 130X. Nonetheless, he observes that “You’re not paying this much for Amazon because you like the quarter. You’re paying this much because you think earnings are going to go up a lot… The only reason for it to trade at this valuation is because people think Amazon will make $20 to $30 a share a year some day.”
For what its worth, the oracle of Omaha, Billionaire investor Warren Buffet seems to admire Jeff Bezos at least based on insinuations from some of his remarks during the last Berkshire Hathaway annual shareholder meeting. When asked about how the effect of online retailers on brick and mortal stores, Buffet says “there are certain people you’ll not want to meet at their own game and Jeff Bezos is number 1… We’re not going to out-Bezos Bezos.”
He admitted that Berkshire was slow to embracing the Internet. Jeff Bezo’s Amazon.com is practically killing Wal-Mart and Walmart is one of the biggest holdings in Berkshire’s portfolio.