How High Can Amazon Stock Go?

How High Can Amazon Stock Go? Amazon.com, Inc (NASDAQ:AMZN) is one of the largest companies in the world, valued at over $1.6 trillion. Its founder Jeff Bezos is stepping down as CEO, leaving Andy Jassy at the helm. He’s steering a company that doubled in value at the onset of the pandemic and seemingly hit a plateau soon after.

So, if you’re investing now, how high can Amazon go?

Ecommerce is just one of Amazon’s many revenue streams. The company continues to expand both vertically and horizontally, diversifying its top line sales in the process.

It has over 150 million Amazon Prime members and a massive distribution network that rivals those of Fedex and the US Postal Service. It owns brands like Audible, IMDb, and Twitch, and it’s continuing to seek opportunities to acquire and expand from within.

But a change of the guard (along with rising antitrust buzz surrounding the company) has some analysts bearish on the possibilities for the future. Make no mistake though – Amazon is an empire that sets the standard for modern business.

Can it continue to deliver big returns for investors?

Amazon Smashed Earnings?

Amazon has smashed earnings estimates last year while brick-and-mortar competitors struggled. The company generated over $100 billion in sales in the past two consecutive quarters with a third on the way.

In fact, the company reported net income of $26.9 billion in the 12 months following the pandemic, from April 1, 2020 to March 31, 2021. That beats the prior three years, which also happened to be the company’s most profitable in history at the time.

From 2017 through 2019, the company earned a total of just under $25 billion in combined profits. And during that timeframe, the company focused heavily on expanding its logistical network and increasing warehouse efficiency through automation, AI/ML, and other advanced technologies.

Now that it has a widespread distribution footprint across the globe and a robust cloud-computing platform through Amazon Web Services, it’s raking in cash as the rest of the economy struggles. 

Amazon Revenues Have Exploded

Amazon’s sales are clearly on the rise since reporting $108.5 billion in the first quarter of 2021. This handily beat analyst predictions of $104.5 billion for the period, although it’s short of the prior quarter, which brought in $125.56 billion.

Of course, that was the holiday season and included both Black Friday and Cyber Monday. And that quarter’s revenue beat analyst expectations of $119.7 billion.

AWS is one of the company’s key metrics, bringing in nearly 10 percent of the total revenue. This was caused by the pandemic’s shift to virtual, contactless, and delivery options. More businesses pushed online to support remote teams and e-commerce, and that helped the company cement its stranglehold in online commerce.

Will Amazon Earnings Keep Rising?

If the past is predictive of the future, the signs are positive for Amazon. When we look back on earnings we see that the company continues to beat analyst estimates while turning in record-breaking profits.

This is a great sign for investors, as the flatlined price for the past six months presents a buying opportunity. And because the company doesn’t pay a dividend, it reinvests in further expansion. It has a large investment division that supports independent sellers and small businesses through its platform.

This gives the company an edge that means it could possibly grow in value, despite already being one of the most valuable companies in the world.

Is Amazon Stock Undervalued?

Amazon stock can hardly be called cheap – share prices trade well over $3,000, and the market capitalization is one of few companies in the world over $1 trillion.

But a case can be made that’s it’s undervalued. It currently trades at about 13x Prime member revenues which is not a particularly lofty multiple. Exclude all other aspects of its business and you’re looking at a company that is potentially significantly underpriced still.

With respect to competitors, it is in a precarious position where it has to fight off major threats from big rivals, like Microsoft and Google, while also keeping an eye on smaller upstarts.

The company’s investment in Twitch and capital poured into Prime Video original programming keep it competitive on multiple levels. It’s a streaming giant in both video and audio, and it should continue to grow through its massive Amazon Affiliates network.

Let’s not forget crowdsourcing through Mechanical Turk, both the smart assistant Alexa and web analytics Alexa, and so much more. Amazon is an online powerhouse that sets the bar for other companies to clear.

Regulatory Risk A Serious Threat

Although it’s running at full speed, Amazon faces increased anti-trust pressure from several governments. Big tech is in the eyes of big government in the 2020s, and the pressure could be among the reasons founder Bezos is stepping down to let Jassy take the lead as CEO.

Jassy long headed AWS and lead the company through a digital transformation. His leadership is solid, and he has a long history and proven track record with the company. He also still has Bezos on the board, which will ensure he still has a say in matters.

Even if the company is broken up by antitrust, it could be a big boon for investors. The country’s first billionaire was created by the first antitrust suit filed by the Securities and Exchange Commission (SEC) against Standard Oil.

The sky is seemingly the limit for investors jumping on now seeking a long-term gain.

How High Can Amazon Stock Go?

Amazon is a trillion dollar company, yet many analysts believe it can grow bigger. The multiples are not lofty for the company when scrutinizing lifetime customer value, prime membership costs and valuation.

Not only that, but the company continues to exceed analyst expectations by earning more than forecast. This is a great sign that it’s still profiting through the transition to a recovery economy.

However, there’s still antitrust attention on the horizon. Governments around the world are looking at companies like Amazon with a fine-toothed comb, and the founder is stepping down in 2021. That leaves a new decade with new leadership, and they must still prove their mettle.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.