Amazon (NASDAQ:) stocks offer an interesting risk-return proposition right now. Shares are going through a bearish spell triggered by the e-tail giant's second quarter on July 29, including guidance from Amazon indicating the Seattle-based company is entering a slow patch.
Amazon weekly chart.
Management noted that AMZN may find it difficult to exceed expectations after a years-long boom in online purchases fueled by the pandemic-driven shopping spree. Indeed, this year Amazon has so far underperformed its competitors in the club with over a billion market cap.
Microsoft (NASDAQ:) shares are up 36%, while Apple (NASDAQ:) shares are up about 15% this year. Meanwhile, Amazon closed on Tuesday at $3,470.79, down 9% from its all-time high in July.
Yet a majority of Wall Street analysts are optimistic about the company's future growth prospects, recommending it to customers and labeling it a purchase.
Chart: Investing.com
Of the 49 analysts surveyed by Investing.com, 48 had a buy recommendation on AMZN, which it called a stock that "will outperform." Their 12-month consensus price target shows a 21% increase from where the stock is trading today.
It's hard to predict how accurate analysts' bullish estimates will prove over the next year, but Amazon's most recent guidance shows the company could find it difficult to exceed expectations after a years-long boom in online purchases , fueled by the pandemic-driven shopping spree.
Indeed, during its second-quarter earnings call in July, Amazon gave a rosy outlook, something that would have satisfied growth-hungry investors. Shareholders' focus has been on the company's core e-commerce businesses, which are indeed slowing down, especially at the same time as founder Jeff Bezos handed over the CEO position to longtime Lieutenant Brian Olsavsky. In a conference call, the new CEO didn't mince words about the situation, telling analysts that the sales slowdown will continue through the rest of the year. The e-commerce company's disappointing outlook was accompanied by sales that missed estimates for the first time since 2018. Analysts have lowered their expectations in the wake of the report. For Amazon's current quarter, its average earnings estimate is down about 16.5% in the past month, according to data collected by Bloomberg. The revenue consensus has fallen by nearly $6.5 billion or 5.5% over the same period.
But the overwhelmingly positive sentiment among analysts shows that this weakness in one of the best mega-cap stocks is a buying opportunity. Even as growth slows from pandemic levels, analysts see long-term growth for the online retail and cloud computing divisions, along with the advertising business, which is currently thriving.
According to Susquehanna analyst Shyam Patil, the stock is up 50% from here, and he thinks now is a "great time to buy" stock.
His recent letter to customers stated:
“Looking at the two-year compound annual growth rates, the trends are still very strong and we see no reason to worry. Ultimately, we continue to see Amazon as a long-term secular grower, supported by its strong e-commerce, cloud and advertising operations.”
Susquehanna's forecast is one of the most optimistic on Wall Street, but many analysts agree that Amazon remains their favorite e-commerce game despite the recent slowdown in growth.
Evercore ISI, which has an "outperform" rating with a price target of $4,200, said in a recent note:
“Our long-term thesis is intact for Amazon….Tactically, AMZN stocks may have some range in the near term as investors debate whether AMZN can recover to 20% reported Y/Y revenue growth by 2022. We believe that it can, given the size of its TAMs (total addressable market), its new growth initiatives and its track record of execution."
Starting point
After remaining an underperformer this year, Amazon stocks are presenting themselves as a more attractive option among the mega-cap tech giants. There's a good chance the stock will catch up with its ilk, especially as the pandemic continues to rage in many parts of the world, accelerating the ongoing shift to e-commerce and cloud computing.
