Amazon. Investment analysis.

In September 2018, the value of e-commerce giant Amazon surpassed the exclusive threshold of 1 trillion dollars. A 35% decline in the share price followed.

With analysts at Citigroup and Oppenheimer, as well as those from other brokerage houses, cutting their price targets, an epic battle between bulls and bears is taking shape. This could lead to unique trading opportunities in Amazon shares, at least for the informed and well-prepared trader. Here is everything you need to know when considering trading it today...

Amazon's 80000% growth

Since its listing in 1997 and its expansion to a value of 1 trillion dollars in 2018, Amazon shares have risen by more than 80000%. The company holds 43% of all online sales and continues to expand internationally.

Originally founded as an online bookstore in 1994, Amazon's revenue now comes from many areas, including Amazon Studios, Amazon Publishing, Amazon Electronics, Amazon Grocery, Amazon Cloud (AWS), and a range of artificial intelligence products and government contracts, alongside its famous Amazon.com e-commerce website.

Growth and expansion into different industries and countries have contributed to investors' decision to buy shares in the company, which has driven the share price higher, as detailed in the chart above.

In fact, according to Amazon's financial data for the last quarter of 2018, published on January 31, 2019, the company beat all analyst estimates for both revenue and earnings per share. However, warning signs appeared in that very announcement. Analysts and investors went into panic mode, sending the stock down 5% that day.

What happened? What are analysts thinking now? Where could the share price go? Let's look at these points together.

The negatives in Amazon's latest financial report

Although Amazon beat analysts' revenue estimates, the company recorded three consecutive quarters of slowing revenue growth in 2018. While the figures were still higher than those for 2017, the slowdown in growth was a concern for many analysts. In this context, however, the comments made by Amazon CFO Brian Olsavsky were what truly pressed the panic button.

Olsavsky said that Amazon would increase its investments this year and also highlighted concerns about new regulations in India that prevent foreign online retailers from selling products through external companies.

The combination of slowing growth, both domestically and internationally, and uncertainty about the impact of Indian regulations was enough for a number of analysts to reduce their price targets for Amazon shares:

• Morgan Stanley's target is 2,200 dollars (down from 2,400 dollars);
• Citigroup's estimate points to 2,000 dollars (down from 2,125 dollars);
• Oppenheimer targets a price of 1,975 dollars (down from 2,020 dollars).

However, most analysts still maintain their recommendation to buy Amazon shares and continue to expect higher prices over the long term.

In fact, Goldman Sachs raised its price target to 2,100 dollars, stating that: "Amazon offers the best risk / reward profile among internet service companies, given the relatively early shift of workloads to cloud services, the transition from traditional retail to online retail, its growing market share in advertising, and the long-term benefits of each of the above. These factors lead us to believe that the market continues to underestimate Amazon".

For long-term trading

Amazon's weekly chart shows a solid long-term uptrend that remains intact even after the higher volatility seen in recent months.

Amazon share chart, source: xStation5 (period 2010-2019):

Fundamental analysis aspects

Long-term traders or long-term investors may be encouraged by the opinions expressed by JP Morgan and Deutsche Bank, both of which are bullish on Amazon over the long term. As Deutsche Bank analyst Lloyd Walmsley said: “We believe Amazon will ultimately substantially increase its influence and continue expanding into healthcare and shipping / logistics; the openness it demonstrates is an additional growth factor. While we do not want to ignore continued share volatility, we believe valuations remain attractive".

While the long-term picture appears convincing, there are, as with any form of investment, certain associated risks that are inevitable. However, for those interested in having a trading account to invest in shares over the long term and open positions on the world's largest stock exchange, we suggest choosing the PRO account type.

The average price target for the next twelve months, based on a survey of 32 analysts, is 2,124.46 dollars, with the highest estimate at 2,450 dollars and the lowest at 1,920 dollars. In reality, this tells us that most analysts believe Amazon will eventually return toward its previous share-price highs and to a market capitalization above 1 trillion dollars.

Source: admiralmarkets.ro

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