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News Digest / Analysis & Ideas / Amazon's Stock: A 'Hold' with Promising Long-term Potential

Amazon's Stock: A 'Hold' with Promising Long-term Potential

Alex Vellor
03:20am, Wednesday, Apr 03, 2024

Photo by Bryan Angelo, Unsplash

Amazon has decided to discontinue its "Just Walk Out" cashier-less technology at its larger Amazon Fresh grocery stores. This move was first reported by The Information on Tuesday. Will this somehow change investor sentiment?

Technical Analysis
Amazon.com, Inc. (NASDAQ: AMZN) closed at $180.69 on April 02, 2024, with a minor decline of $0.28 (-0.15%). The trading activity was confined between a low of $178.38 and a high of $180.79, indicating a relatively tight trading range for the day. Such movements suggest a cautious optimism among investors, as the stock hovers near its year high of $183.

AMZN 3-month chart on StockInvest.us

The market capitalization stands impressively at approximately $1.88 trillion, underscored by a trading volume of 31.31 million shares.

The Relative Strength Index (RSI) at 65 suggests that AMZN is approaching overbought territory but still has room for upward momentum before it hits the traditional overbought threshold of 70.

The stock is trading above both its 50-day moving average of $171.85 and its 200-day moving average of $146.89, indicating a positive medium to long-term trend. The Moving Average Convergence Divergence (MACD) at 1.49 further validates this bullish sentiment, reflecting strong momentum.

Given the Average True Range (ATR) of 1.77, AMZN showcases moderate daily volatility, suitable for a range of investment appetites. The technical support and resistance levels are outlined at $174.42 and $180.97, respectively, which could serve as critical pivot points in the short term.

Fundamental Analysis

Amazon's EPS stands at $2.90 with a Price-to-Earnings (PE) ratio of 62.31, reflecting a premium valuation that investors are willing to pay for the company's growth prospects. A high PE ratio also indicates expectations of higher earnings growth in the future compared to companies with a lower PE ratio. The company's significant market cap and volume signify robust investor interest and financial stability.

The recent news regarding Amazon replacing its 'Just Walk Out' technology with smart shopping carts in Amazon Fresh stores showcases Amazon’s adaptability and focus on enhancing customer experience. Such innovations could streamline operations and potentially increase sales efficiency, reflecting positively on future earnings.

However, it is essential to consider the broad market sentiment and specific analyst outlooks.

Projection Type Value
Lowest Target $84
Highest Target $270
Consensus Target $170.26
Current Trading Price Slightly below $170.26

For instance, the targeted projections range widely from as low as $84 to as high as $270, with a consensus target of $170.26, slightly below the current trading price. This disparity suggests divergent views on AMZN's future performance, warranting caution.

Moreover, the consensus among analysts positions AMZN as a "Buy," indicating prevailing optimism about the stock's potential for growth, supported by a majority of analysts advising a buying position.

AMZN Stock Long-term Investment Potential

The discounted cash flow (DCF) valuation of $49.64, significantly below the current trading price, may raise concerns regarding overvaluation. However, it’s crucial to note that DCF models can be sensitive to input assumptions, such as future cash flows and discount rates, which could vary significantly.

Considering Amazon's continuous innovation, market dominance in e-commerce and cloud computing, and strategic shifts like the recent changes to its Amazon Fresh operations, the company exhibits a strong long-term investment potential. Amazon’s ability to adapt and evolve in response to consumer and technological trends strengthens its competitive position and ability to generate future cash flows.

Overall Evaluation
Based on the analysis, Amazon.com, Inc. (AMZN) is categorized as a 'Hold' candidate. While the company presents a compelling blend of technical strength and fundamental robustness with significant long-term potential, the current stock price closely hovering around the consensus target and the premium valuation reflected in the PE ratio suggest a cautious approach.

Investors should pay attention to the upcoming earnings announcement on 04/25/2024, as this event could provide critical insights into Amazon's operational efficiency and future growth strategies, potentially impacting the stock's short-term trajectory and validating its long-term trajectory.


About The Author

Alex Vellor