Back in July, Amazon's [AMZN] share price hit a 52-week high of $2085.80, but flat Q2 results and a warning that profits would disappoint in Q3 has since seen the stock trapped between $1745 and $1845. However, there are some analysts who think now is the time to buy Amazon before it rallies past $2000.
At the start of this month, Mad Money host Jim Cramer said that the stock is bottoming with the potential to rally past the $2000 level. Cramer based this on chart analysis from FibonnacciQueen.com’s Caroly Boroden.
“The charts, as interpreted by Carolyn Boroden, suggest that Amazon has finally resumed its long-term rally, and she thinks it might be headed to $2,115.”
According to Boroden, traders should buy the stock as long as it doesn’t dip below $1743. If the share price does rally, $2155 is Boroden’s "first upside target" with the possibility of a run at $2216. Hitting the later target would represent a 22% upside on yesterday’s closing price.
“The charts, as interpreted by Carolyn Boroden, suggest that Amazon has finally resumed its long-term rally, and she thinks it might be headed to $2,115” - Mad Money host Jim Cramer
Diminishing regulatory fears
Going in Amazon’s favour is an easing in regulatory risk in Europe. Germany's influential competition authority, the Federal Cartel Office ("FCO") had imposed restrictions on how Facebook processes user data. However, the Düsseldorf Higher Regional Court expressed doubts over the legality of the ruling and, while the FCO appeals, the proposed measures won't come into effect.
So what does this mean for Amazon? Given the international influence of the authority, there was a danger the ruling would apply to other FAANG stocks. With the court ruling now on the back burner, shares in Amazon might now be a less risky option for cautious investors fearing another major antitrust case.
While the pressure might be off Amazon on the regulatory front, competition is definitely heating up among its rivals. In the US, analysts expect Shopify to surpass eBay [EBAY] to become the second highest e-commerce platform in the country, behind Amazon.
Shopify's [SHOP] share price is up over 150% this year and its market cap of $40 billion, beats eBay's $36 billion - although it has a long way to catch Amazon’s $909.8 billion. Such strength has seen market research company R.W. Baird raised its price target on Shopify stock from $370 to $410.
Shopify's share price increase this year
It’s not just on the e-commerce front that Amazon is facing pressure. AWS, Amazon’s cloud computing business is also losing ground to competitors. In Q2 results, AWS reported its slowest growth rate in years. While still dominating cloud computing - accounting for 47.8% of market share - competitors like Microsoft [MSFT] have begun to close the gap. Analysts will be watching Amazon’s Q3 results at the end of the month to see how the high-margin AWS operation is performing.
Time to buy Amazon?
While Mad Money’s Jim Cramer thinks Amazon is a ‘buy’, many analysts consider the stock overvalued. For investors thinking now is the time to buy, the stock trades at 54.73x forward earnings. Although that’s far cheaper than Shopify's 343.00x multiple. Amazon’s stock is volatile too, with a 52-week low of $1307 and 1.62 beta (3Y monthly).
|PE ratio (TTM)||75.40|
|Quarterly Revenue Growth (YoY)||19.90%|
Amazon share price vitals, Yahoo Finance, 19 September 2019
Will Amazon break through the $2000 level? A lot will depend on how Q3 numbers play out on 26 October. If Amazon is able to beat expectations - especially after downplaying potential profits - then the stock could rally.
Looking further ahead, expectations are for top line revenue to increase more than 20% by the end of 2019, with 40% added to the bottom line in 2020. All positives for traders hoping for a continued upward trend. Among analysts, Amazon carries an average price target of $2295. Hitting this would represent an impressive 26% upside on the current share price.