Amazon Stock Price Forecast December 2021 – Time to Buy AMZN Stock?

Amazon (AMZN) stock is up just about 6% for the year and is underperforming the markets by a wide margin. While the S&P 500 hit a new closing high last week, AMZN stock is down around 7% from the 52-week highs.

Amazon is the worst-performing FAANG stock of 2021. While Apple stock was also weak for the most part of the year, it has since rebounded and is now the second-best performing FAANG stock after Alphabet. In terms of market cap, while Amazon used to be behind only Apple, it now trails Microsoft as well as Alphabet.

Apple’s market cap is flirting with the $3 trillion level while Alphabet’s market cap briefly rose above $2 trillion. Amazon’s 2021 underperformance could be frustrating as it looked set to become the next $2 trillion company but got outflanked by Microsoft and Alphabet. What’s the 2022 forecast for Amazon and is it a good buy in December 2021?

Amazon has been facing growth concerns

Amazon has been facing growth concerns and its revenue growth has missed estimates for two consecutive quarters. It was the first time in three years that the e-commerce giant missed earnings estimates. That’s hardly a good omen for the CEO Andy Jassy who took over the baton from Jeff Bezos earlier this year.

Amazon also gave soft guidance for the fourth quarter. Along with a slowing topline, the company is also facing cost pressures and had forecast lower than expected operating profit for the fourth quarter. At the bottom end of its range, the company could post zero operating profit in the fourth quarter.

Commenting on the guidance, Jassy “In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs.”

Along with that, the company has been facing stiff competition in the cloud industry. While the company is still the market leader in the cloud, competitors are fast catching up. Notably, Amazon’s cloud operations are its most profitable business segment.

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AMZN is facing short term issues

To sum it up, Amazon is facing multiple issues in the short term. For instance, it is facing tougher YoY comps as its growth had surged in 2020 amid the COVID-19 pandemic. Now, as economies have mostly reopened the company is having trouble in reporting similar growth. Also, it is facing cost headwinds from higher labor and supply chain costs.

Amazon stock forecast

Wall Street analysts are bullish on Amazon stock even as some have revised down their target prices. Of the 51 analysts covering AMZN stock, 48 rate the stock as a buy while three rate it as a hold. None of the analysts have a sell or equivalent rating on the stock.

Its median target price of $4,000 implies an upside of 15.4% over current prices. Its lowest target price is $3,473 which is similar to current prices while the highest target price of $5,000 is a premium of 44.3% over current prices.

 

AMZN stock long term forecast

The long-term forecast for Amazon stock looks positive. Goldman Sachs is of the view that the current investments that Amazon is making would only cement its position in the e-commerce market.

The shift towards e-commerce and cloud will only accelerate in the coming years as the digital transformation continues. Amazon has a market-leading position in both these industries. The stock also forms part of Berkshire Hathaway’s portfolio and chairman Warren Buffett regrets missing the stock in its early days. Over the long term, international operations would drive the growth for Amazon. The company already has a strong position in India where it competes with Walmart-owned Flipkart.

Brokerages see AMZN as a top pick for 2022

Many brokerages including Cowen, Bank of America, and Goldman Sachs have listed Amazon as a top pick for 2022. Bank of America listed AMZN as a top idea yesterday only and said “While holiday 2021 sales are sluggish and 1Q margins have risk, Amazon is our top FANG given our expectation that 2022 will end much better than it starts.” It added, “We see share gains, accelerating 2H′22 growth as comps ease, supply chain improves and infrastructure investments play out, potential optimism on a 2023 margin inflection, and sum-of-parts valuation upside.”

Amazon stock technical analysis

Amazon stock has been quite rangebound over the last year. As a result, its 50-day, 100-day, and 200-day SMA (simple moving average) are quite similar. Currently, the stock trades above all these key moving averages. The 14-day RSI of 49.6 is a neutral indicator.

Amazon’s NTM (next-12 months) PE multiple is 87x which might seem on the higher side. However, the valuation should be seen in context as it is getting skewed by the short-term impact on earnings. For instance, according to the data compiled by Koyfin, analysts expect Amazon’s EPS to be $40.72 in 2021, which is 2.6% below what it posted in 2020. However, its EPS is expected to rise 28% to $52.11 in 2022. In 2023, analysts expect the company’s revenues to rise almost 49% to $77.60.

Should you buy Amazon stock?

This gives us a 2023 PE multiple of just around 45x which seems reasonable. Amazon is not only an e-commerce platform but a complete ecosystem. The company has services like Prime which add to customer stickiness on the platform. Also, it is a play on the massive amount of user data that it has which it can use to show relevant products. There is also the network effect as the availability of wider choices on the platform acts as a competitive advantage and builds high barriers of entry. The company has built a strong moat with its ecosystem which is impeccable.

Along with the domestic markets, Amazon also allows users to buy products internationally. The company’s customer service is also a USP even as there would be the odd event of a buyer not being happy with the services. The complete ecosystem that AMZN has built is hard to replicate easily.

Amazon looks among the best stocks for 2022 and no wonder multiple brokerages have listed it as a top pick. The recent underperformance of AMZN stock looks like a golden buying opportunity for investors.

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