Is Amazon Stock Ready to Break Out Again?

The top dog in online retail is the only one of the five most valuable U.S. stocks by market cap to not deliver double-digit returns over the past year. With a potentially game-changing quarterly report on the way next week, this could be the lull before the next move higher.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

One of the more interesting data nuggets that I stumbled upon over the weekend as I was running through some stock screens is that (NASDAQ: AMZN) has been a market laggard among its peers over the past year. Among the five largest public U.S. companies by market cap, the leading online retailer is the only one that has failed to deliver a double-digit percentage return over the trailing 52 weeks.

Amazon’s pedestrian 0.7% return over the past year is surprising. It’s not even keeping up with some of the better money market funds. Starting lines matter, naturally. The stock is up nearly 16% so far in 2019, but that follows a brutal holiday quarter last year during which it shed a quarter of its value. The fact remains that over the past 365 days, the stock has been on a round trip to essentially nowhere. At least one Wall Street pro thinks that things could be about to change.

Let’s go shopping

Goldman Sachs analyst Heath Terry feels that Amazon will deliver better-than-expected financial results when it delivers its third-quarter results next week. He sees a record number of physical retail stores closing as a sign that more shoppers are migrating online. He also feels that recent Amazon moves to speed up its already quick deliveries, the expansion of Amazon Web Services’ infrastructure and services, and improving momentum when it comes to online advertising will serve Amazon well in the coming quarters.

Some of these positive developments are coming at a price. The investments should eat into near-term operating profits. However, he feels that Amazon’s dominant market position will let it continue to command a market premium as a no-brainer quality growth stock. He is naturally sticking to his buy rating on the shares, and keeping Amazon on Goldman Sachs’ Conviction List of leading recommendations. He is slightly lowering his 12-month price target from $2,400 to $2,350, but that still represents a hearty 35% return. Given the stock’s flat performance over the trailing year, it would be the break that folks taking on the risk of holding Amazon have been waiting for.

Investors are already bracing for what could be a mixed report when Amazon announces its financial results a week from Thursday. They see net sales rising 21.6% to hit $68.8 billion, but squeezed margins will see the bottom line going the other way. Analysts see earnings per share falling to $4.57 from a $5.75 showing a year earlier. Amazon typically lands ahead of Wall Street’s profit targets, but it disappointed investors with a rare miss last time out.

After four consecutive years of accelerating top-line growth — clocking bursts north of 30% in back-to-back years — business is slowing again, but most retailers and even e-tailers would love to be checking in with better-than-20% growth and a juicy profit during the seasonally sleepy third quarter. It may seem that Amazon has fallen out of favor with the market as brick-and-mortar chains pick up the cadence on their online offerings. Even its once ballyhooed Prime Video platform is being nudged to the headline sidelines lately with new attractively priced streaming video platforms launching next month. But Amazon will do just fine. It’s been asleep at the wheel over the past year, but if it is about to deliver a bounce-back quarterly report next week, now would be a good time for the shares to wake up again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

More on Tech Stocks

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »

Tech Stocks

Nvidia Stock Is Making History: Will It Make New Investors Any Money?

Nvidia stock (NASDAQ:NVDA) continues to surge past all-time highs, with shares up 265% in the last year alone! But can…

Read more »

Shopping and e-commerce
Tech Stocks

Shopify Stock Could Be a Major Generative AI Winner

Shopify (TSX:SHOP) stock could be a great gen AI stock pick for growth investors looking for a TFSA titan.

Read more »

woman analyze data
Tech Stocks

2 Tech Stocks I’d Buy in March 2024

High-growth tech stocks such as Datadog and Shopify should be on your shopping list in March 2024.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

2 Growth Stocks to Hold for the Next 10 Years

Given their multi-year growth potential and attractive valuations, I am bullish on these two stocks.

Read more »

analyze data
Tech Stocks

If You’d Invested $500 in Nuvei Stock in 2020, This Is How Much You Would Have Today

Nuvei (TSX:NVEI) stock has seen its shares climb to triple digits and fall below IPO prices. So, what now for…

Read more »

Is Nvidia stock a buy?
Tech Stocks

Is Nvidia Stock a Buy After Its Huge Post-Earnings Surge?

Nvidia (Nasdaq:NVDA) stock jumped after the company’s phenomenal fourth-quarter earnings report, and everyone’s talking about a booming future for AI.…

Read more »

crypto, chart, stocks
Tech Stocks

2 Artificial Intelligence (AI) Stocks That Could Go Parabolic

Palantir Technologies stock and this tiny Canadian AI stock could rally as their new platforms bring new customers in 2024.

Read more »