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

Amazon (AMZN) is the third-largest company listed on the US markets. The stock is up 10% so far in 2021 which is barely in line with that of the S&P 500. What’s the forecast for AMZN stock in July 2021? Is it a good time to buy the stock now?

Amazon is entering a new epoch in its history after its founder Jeff Bezos quit as the company’s CEO and handed over the baton to Andy Jassy who has been with the company for over two decades. Meanwhile, Bezos will transition into the role of executive chairman where he will help make long-term strategic decisions.

Amazon stock technical analysis

Amazon stock has been on an uptrend and has rebounded from its 2021 lows. The stock currently trades above the 50-day, 100-day, and 200-day SMA (simple moving average) which is a bullish indicator. However, it is getting near overbought levels with a 14-day RSI (relative strength index) of 64.6. RSI values above 70 signal overbought positions while values below 30 signal oversold positions.

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AMZN stock recent developments

In April, Amazon reported its first-quarter 2021 earnings which were far ahead of analysts’ estimates. It reported revenues of $108.52 billion in the quarter which were higher than the company’s guidance and $104.5 billion that analysts were expecting. AMZN has posted revenues higher than $100 billion for two consecutive quarters which is no mean achievement in itself.

The company’s first-quarter EPS of $15.79 was also higher than the $9.54 that analysts were expecting. The company posted an operating income of $8.9 billion in the quarter which surpassed estimates by a wide margin.

Amazon earnings beat

The company’s AWS (Amazon Web Services) was the most profitable vertical and posted an operating income of $4.16 billion in the quarter while its North American e-commerce operations posted an operating income of $3.45 billion. Amazon’s International e-commerce operations also posted an operating profit of $1.2 billion in the quarter. The company’s international operations have been loss-making as it has been investing in marketing and promotions to gain market share.

While Amazon is present in several businesses, AWS has been the cash cow. The company has been using the cash to grow and invest in other businesses, especially in international e-commerce operations.

AMZN stock forecast

Wall Street analysts are overwhelmingly bullish on AMZN stock and of the 49 analysts covering it, only one has rated it as a hold while the remaining rate it as a buy or some equivalent. The stock has a median target price of $4,225 which is a premium of over 20% over current prices. The stock trades 7.5% below its street low target price of $3,775 while the street high target price of $5,500 implies an upside of 56% over current prices.

Wall Street analysts are bullish on Amazon stock

Last month, Telsey reiterated its bullish bet on Amazon stock after the company reported strong Prime Day sales. “We believe Amazon had a solid Prime Day, likely in line with our sales forecast of $11B-$12B, up 6%-16% over Prime Day 2020, with US sales of $8.0B- $8.5B. We believe the 2021 Prime Day benefited from a favorable macro environment, including the ongoing shift toward online, strong discretionary demand, a larger global Prime member base, a wider product assortment, particularly private brands, and an increase in participation by small businesses,” Telsey said in its note.

Jeffries also issued a bullish note on AMZN last month and said “We are adding AMZN to the Jefferies Franchise Picks list as fundamentals are likely to benefit from increased e-comm adoption and faster growth at its highest margin businesses. Our proprietary survey points to a permanent increase in online consumption, with 63% of respondents continuing to spend more online even after restrictions were lifted.”

Why Amazon stock looks like a good buy

Amazon is one mega-cap company that has a strong growth outlook for the near foreseeable future. There are secular trends of pivot towards e-commerce and cloud, both of which bode well for AMZN. While there are concerns over a slowdown in growth rates, the growth shouldn’t fall much from last year when the COVID-19 pandemic fuelled sales for e-commerce companies.

Analysts expect Amazon’s sales to rise 27% and 18% in 2021 and 2022 respectively. The company could end up surprising on the upside, just like it has been doing over the last many quarters. The percentage of online sales in total retail sales is expected to keep rising which bodes well for Amazon.

Amazon ecosystem

 

Amazon is not only an e-commerce platform but a complete ecosystem. It has services like Prime which add to customer stickiness on the platform. To add to that, 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, both domestic and international, acts as a competitive advantage and builds high barriers of entry for new e-commerce companies. In short, AMZN has built a strong moat with its ecosystem which is impeccable.

AMZN stock looks undervalued and a strong buy

From a valuation perspective, Amazon trades at an NTM (next-12 months) PE multiple of 61.2x which looks quite attractive and is a steep discount to the 105x that it has averaged over the last five years. Amazon’s earnings should continue to grow at a higher pace than its revenues in the near foreseeable future. The multiples look like an attractive entry point into this quality play on e-commerce and cloud.

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