Case Study: What Credible analysts are saying on Amazon (AMZN) stock
Key Points
Performance
Amazon shares fell by 50.7% during 2022, underperforming the S&P 500 and the Nasdaq Composite Index, which were down by 19.4% and 33.1% during 2022, respectively, by a wide margin. Johnson & Johnson shares fell by 0.46% this week. However, they’re up by 2.98% on a year-to-date basis. This compares favorably to the S&P 500, which is down 19.4% in 2022 thus far.
Event & Impact
Amazon shares hit 52-week lows this week as higher interest rates and persistent inflationary pressures continue to hurt the sentiment surrounding shares.
Noteworthy News:
Amazon’s eCommerce growth is expected to slow again in coming quarters; however, credible authors point out the big-data collection that Amazon Prime provides the company and the profitable growth that AMZN is generating, using this data to sell digital advertisements.
Nobias Insights
59% of recent articles published by credible authors focused on Amazon shares offer a “bullish” bias. 14 out of the 15 credible Wall Street analysts who cover AMZN believe shares are likely to rise in value. The average price target being applied to Amazon by these credible analysts is $171.21, which implies upside potential of approximately 103.8% relative to Amazon’s current share price of $84.00.
Bullish Take Rob Starks Jr., a Nobias 5-star rated author, said: “Amazon sells for a price-to-sales (P/S) ratio of 1.7; the last time it traded at a P/S ratio this low was in 2015. As a result, many investors consider the stock undervalued, a holiday present for investors looking for a solid "buy the dip" opportunity.”
Bearish Take Luc Olinga, a Nobias 4-star rated author, said, “The numbers speak for themselves: The Amazon stock closed the December 22 trading session at $83.79, which represents a 49.7% drop compared to December 31, 2021. This is the lowest closing level for the Amazon stock since March 12, 2019. Basically, the group, founded by Jeff Bezos, has completely erased all the gains during the two years when strict restrictions were put in place to limit the spread of COVID-19.”
AMZN Dec 2022
Amazon shares hit new 52-week lows this week. The stock fell to $81.69, which was 52.3% below its 52-week highs of $171.40. Amazon rallied a bit into the end of the week, ending 2022 trading for $84.00/share. This meant that AMZN posted losses of 50.7% during 2022, underperforming the S&P 500 and the tech-heavy Nasdaq, which were down by 19.4% and 33.1% during 2022, respectively, by a wide margin.
Bearish Nobias Credible Analysts Opinions:
Luc Olinga, a Nobias 4-star rated author, covered Amazon’s 2022 sell-off in a recent article that he published at The Street, stating, “It’s a dark year for Amazon.” Then, he broke down just how “dark” it was, stating: “The numbers speak for themselves: The Amazon stock closed the December 22 trading session at $83.79, which represents a 49.7% drop compared to December 31, 2021. This is the lowest closing level for the Amazon stock since March 12, 2019. Basically, the group, founded by Jeff Bezos, has completely erased all the gains during the two years when strict restrictions were put in place to limit the spread of COVID-19.”
Olinga noted that significant sell-offs like this have proven to be relatively rare for Amazon shares. He said, “The Amazon stock is thus about to experience the second bad year in its history after the year 2000, during which it had fallen by 79.6%.”
Because of its 2022 weakness, Olinga noted, “Amazon was kicked out of the trillion club last month, the inner circle of companies with a market value of at least $1 trillion.” On this note, he continued, “The Seattle, Washington-based firm's [Amazon] market capitalization is nearly $855 billion at the time of this writing versus $2.1 trillion for the iPhone maker [Apple], $1.82 trillion for the Saudi oil giant [Saudi Aramco], $1.78 trillion for the software juggernaut [Microsoft] and $1.14 trillion for the parent company of Google [Alphabet].”
Olinga highlighted rising interest rates and the deteriorating macro economic environment as a major reason for Amazon’s 2022 weakness. He wrote, “Consumers tend to spend on tech products and services when things are going well. But as soon as the economic situation deteriorates, they begin to be cautious, favoring necessary purchases, often to the detriment of tech.”
Furthermore, Amazon’s revenue slowdown has added to the negative sentiment surrounding shares on Wall Street. When Amazon reported its most recent earnings on October 27th, 2022, the company reported 14.7% revenue growth. This was below long-term averages. Furthermore, Amazon provided guidance for the fourth quarter which called for single digit top-line growth.
Regarding this guidance, Olinga said, “This forecast was particularly disappointing to investors, because it focused on the end-of-year holiday period, which is supposed to be a time when consumers tend to increase their spending.”
Bullish Nobias Credible Analysts Opinions:
Yet, with AMZN shares hovering near 52-week lows, a couple of credible authors published year-end reports this week which highlighted Amazon as one of their strongest buying opportunities looking ahead to 2023. Rob Starks Jr., a Nobias 5-star rated author, recently published an article at the Motley Fool titled, “Buy This Unstoppable E-Commerce Giant While It Sits Near a 52-Week Low”.
The ongoing growth and sticky retention provided by Amazon Prime and Amazon’s growing eCommerce business as a whole played a pivotal role in Starks’ bullish opinion. Regarding Prime, he wrote, “It quickly became the world's most incredible loyalty and retention subscription service. For instance, market research company Statista estimated that U.S.-based Prime members have a 93% retention rate after the first year and 98% after two years.”
Starks said, “You can see this in a 2019 Statista survey that shows U.S.-based Prime members spent an average of $1,400 on Amazon each year, compared to $600 spent by non-Prime members.” He continued, “While no one outside of Amazon is privy to whether Prime is profitable on paper, Prime generates tons of proprietary first-party data on its 200 million global subscribers, which the company monetizes in many fruitful ways, such as advertising.”
And, as Starks says, this is an underappreciated component of Amazon’s overall business. He noted, “While advertising only makes up 7.5% of Amazon's revenue, that revenue is growing at 30% year over year in a terrible ad market, compared to Amazon Web Services (AWS), its next fastest-growing segment, increasing revenue by only 28% at the end of the third quarter.”
“During times of a healthy ad market,” Starks continued, “these margins have risen as high as 40% -- very profitable growth.” Lastly, while the current rising rate environment isn’t conducive towards bullish sentiment surrounding long-duration assets, like a high growth stock such as AMZN, Starks points out that when the Fed pivots to a more dovish stance, Amazon is likely to rebound. He wrote, “Suppose you are an Amazon investor; you should only expect a revenue, profitability, and stock price rebound when the Federal Reserve changes from raising interest rates to reducing rates.”
Starks concluded, “Amazon sells for a price-to-sales (P/S) ratio of 1.7; the last time it traded at a P/S ratio this low was in 2015. As a result, many investors consider the stock undervalued, a holiday present for investors looking for a solid "buy the dip" opportunity.”
Harsh Chauhan, a Nobias 4-star rated author, also highlighted Amazon has a strong contrarian buy in a recent article published at The Motley Fool titled, “2 No-Brainer Warren Buffett Stocks to Buy Hand Over Fist for 2023”. Chauhan touched upon Amazon’s 2022 sell-off, stating, “The company's growth has lagged thanks to a slowdown in e-commerce sales on account of surging inflation.” “But,” he continued, “with inflation expected to cool down substantially in 2023, the e-commerce business can be expected to step on the gas once again.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
“More specifically,” Chauhan notes, “Amazon is expected to finish 2022 with a loss of $0.09 per share, compared with a profit of $3.24 per share in 2021, but the forecast for 2023 and 2024 shows major improvements are in the cards.” Looking ahead, he said, “It is estimated that global e-commerce spending could rise to $6.5 trillion in 2023 from $5.7 trillion in 2022. That would be a nice improvement over this year's estimated decline of nearly 10%.”
And, like Starks, Chauhan put the spotlight on Amazon’s fast growing digital advertising business, stating, “Amazon's entry into a lucrative market such as advertising should be another key catalyst for the company in 2023.” Chauhan said, “Amazon's 2022 ad revenue is expected to land at $38 billion. By 2026, this figure is expected to jump to $64 billion.” Overall, he concluded, “Throw in other growth drivers such as cloud computing, an area where Amazon dominates, and it is easy to see why the company is expected to clock 26% annual earnings growth for the next five years.”
Overall bias of Nobias Credible Analysts and Bloggers:
Looking at the broader data collected by the Nobias algorithm, 59% of recent articles published on Amazon by credible authors have included a “bullish” bias towards shares. What’s more, 14 out of the 15 Wall Street analysts who cover Amazon shares believe that they’re likely to head higher from here. Currently, the average price target being applied to Amazon by credible analysts is $171.21. Relative to Amazon’s current share price of $84.00, that represents upside potential of approximately 103.8%.
Disclosure: Nicholas Ward is long AMZN. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.