Amazon stock(AMZN)has not been in a hurry to move any higher. Some may not have realized, but shares of the cloud and e-commerce giant trade today a few percentage points below early September 2020 levels – nearly a full year of largely sideway movements in the market.
One Wall Street expert, however,believesthat AMZN has a very long runway ahead. According to Susquehanna analyst Shyam Patil, the stock has 50% upside from here, and he thinks that now is a “great time to buy” shares.
Growth story intact
Amazon stock would have been having a decent 12 months of performance, up around 20% between late July 2020 and 2021, if not for bearishnesstriggered by second quarter earnings. On July 29, the company downshifted gears on the e-commerce growth story, leading some investors to scramble for the exits.
But the bullish Susquehanna analyst, who currently has a price target of $5,000 on Amazon shares, did not see reason to panic. Here is his quote:
“Looking at the two-year compounded annual growth rates, trends are still very strong and we see no reason to be concerned. Ultimately, we continue to see Amazon as a long-term secular grower underpinned by its strong e-commerce, cloud, and advertising businesses.”
Clearly, Mr. Patil is more focused on the company’s long-term prospects which, I agree, continue to look good. The graph below helps to illustrate his point on the two-year growth rate of Amazon’s North America business – the segment that underperformed in Q2. The figures below are annualized.
Notice that growth in North America remains elevated, above 30% per year, after smoothing out the impact of the pandemic. The problem, in the short term, is that expectations may have been set too optimistically coming out of the COVID-19 crisis. They had to scale back at some point in 2021.
Is AMZN's price right?
The Susquehanna team seems to base its AMZN bullishness on the secular tailwinds in digital retail, cloud and advertising benefitting the Seattle-based company. But valuation does not seem to come up often as a key component of Mr. Patil’s investment thesis.
In that regard, I believe that Amazon stock may be about as attractively priced as it has ever been. Although the share price hasnotmoved higher in 12 months, the company’s projected financial resultshave. As a result, valuations have dropped near all-time lows, asthe Amazon Maven recently discussed.
Do I think that AMZN will, in fact, reach $5,000 per share in the foreseeable future? This is a tough question to answer. But historically, buying the stock after pullbacks (it is currently 11% off peak levels)has proven to be a smart move– more so now that valuations have de-risked quite a bit.