When the stock of Amazon went up in 2020, it took a break in 2021. The shares are up less than 5%. The S&P 500 has a 27% gain over this same period. One analyst thinks that the stock can go up in the future.
Monness Crespi Hardt analyst Brian White recently reiterated a buy rating and a $4,500 price target on Amazon stock, representing more than 30% upside for the growth stock. Is it a good time to buy Amazon shares?
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The case of a bull.
White's optimistic view for Amazon stock is based on the company's cloud computing business, not its e-commerce business. The company will be one of the biggest beneficiaries of accelerated digital transformation as the economy reopens, said White in a note to investors.
The important cloud computing segment saw revenue increase 39% in the third quarter of 2021. The segment's year-over-year growth rates have accelerated in the last three quarters. In the fourth quarter of 2020, the business unit grew by 28%, and in the first and second quarters of 2021, it grew by 32% and 37%.
White's thesis is that Amazon's profitability is suppressed compared to its long-term potential. Amazon is always investing in its business. By the end of the third quarter of 2021, the size of Amazon's fulfillment network had doubled compared to what it was before the outbreak.
Amazon's profitability valuation metrics, like price-to-earnings, appear to be inflated because of the company's aggressive reinvestment in virtually all areas of its business. White says investors shouldn't let the metrics fool them. The company's profitability is still early.
Is Amazon stock a good investment?
While investors should do their own due diligence before buying any stock, White has some great points about Amazon stock. It is possible that shares may trade at 67 times earnings. Over the next five years, analysts expect revenue growth and margin expansion to lead to earnings-per-share growth. Analysts expect Amazon's earnings per share to grow at an average rate of 36% over the next five years.
The stock is a good buy today because of Amazon's potential for significant earnings growth and the company's impressive momentum in cloud computing. The lagging performance of the stock can be used to get in on a great company's shares at a good price.
