Amazon's [AMZN] share price is trading at all-time highs this month, having risen in line with the Nasdaq’s recent surge. This is partially due to the coronavirus pandemic boosting e-commerce sales; for many people stuck in lockdown, Amazon's services have become something of a lifeline. That said, there are headwinds that investors should be wary of, including increased costs and upcoming antitrust investigations.
So, can Amazon's share price continue to hit all-time highs, or is a dip on the cards?
What's happening with Amazon's share price?
23 June saw Amazon’s share price hit an all-time high of $2,796 in what has been a remarkable run of form. As of 29 June’s close, the stock has notched up gains of circa 45% year-to-date and, given that Amazon’s share price started January at $1,875, anyone who scooped up the stock then will have made a healthy profit.
The coronavirus outbreak has caused some uncertainty across the board, and Amazon’s share price is no exception. Since hitting a year low of $1676.61 on 12 March, though, the stock has rocketed in line with a post-outbreak increase in online shopping, gaining almost 60% by 19 June’s close .
Amazon's share price rally has broadly matched the Nasdaq's own gains. So far this year, the exchange is up 8.6%, having experienced an upswing since mid-March. In June, the Nasdaq was trading at record highs, touching the 10,131.37 level on 23 June.
Amazon's YTD share price rise
Analysts upgrade Amazon’s share price
On Friday, analysts at both Deutsche Bank and SunTrust upped their price target on Amazon. Deutsche Bank raised its price target to $3,333 from $2,750 - a 24.3% upside on the current price (as of 19 June’s close). Deutsche's Lloyd Walmsley described Amazon as the "clear winner" among its competitors during the coronavirus outbreak. Walmsley noted that the new customers Amazon has gained during the lockdown will likely continue buying after restrictions ease.
SunTrust was even more optimistic, pinning a $3,400 price target on Amazon, up from $2,700. Hitting this would see a 26.8% upside on Amazon's share price through 29 June’s close. Analysts at SunTrust said that the lockdown situation had only accelerated the shift to e-commerce.
Is Amazon's share price heading for a dip?
Forbes contributor John Navin isn't as optimistic as Deutsche and SunTrust, pointing to Amazon's sky-high 128x price-to-earnings multiple.
"A p/e that high indicates that investors believe nothing can go wrong. You know what that means," Navin wrote on Forbes.
Navin highlights a series of antitrust lawsuits that Amazon will have to face in the near future. He suggests that, if the Democrats win in the US presidential elections this November, the "prospect for an eventual breaking up of the Jeff Bezos empire begins to emerge".
In Europe, Amazon is also facing antitrust charges from the EU over its treatment of third-party sellers. If found guilty, the EU competition commissioner can impose fines of up to 10% of the company’s annual revenue. A fine of that size would likely have a negative impact on Amazon’s share price.
In the short-term, though, the greatest threat to Amazon's share price is just how much the coronavirus has affected business. More sales invariably mean more income, but upping business in the midst of a public health emergency carries its own cost implications.
|PE ratio (TTM)||128.03|
|Quarterly Revenue Growth (YoY)||26.40%|
Amazon share price vitals, Yahoo Finance, 30 June 2020
So, time to buy Amazon?
All eyes will be on Amazon’s upcoming Q2 earnings announcement as investors try to get a sense of how well Amazon has really performed during the pandemic. Analysts appear optimistic, with Wall Street forecasting revenue of $80.56 billion in the second quarter, up 27.1% from the same time last year.
There is no guarantee this will translate into bumper profits in the quarter, though, since Amazon says it has spent $4 billion on its coronavirus response. For the second quarter, earnings are expected to come in at $1.37 a share, down from $5.22 a share seen in the same quarter last year.
Amount spent by Amazon on its coronavirus response
Such a drop could spell trouble for Amazon's share price. That said, if the company is able to beat Wall Street earnings expectations, then its share price could keep breaking through its all-time highs for some time to come.
Of the 47 analysts tracking Amazon's share price on Yahoo Finance, 15 rate it a Strong Buy and 28 rate it a Buy. An average 12-month price target of $2,753.24 would see a 2.7% upside on the current share price through 29 June’s close.