Amazon is expected to soon announce locations (yes, plural) for its second headquarters. One of the rumored HQ2 spots is Long Island City in Queens, fittingly just a 22 minute ferry ride from where some of Amazon’s biggest fans work: Wall Street.
Although Amazon’s stock has been hit by tech turbulence lately, some analysts think it will soon return to and blow past the $1 trillion level it briefly topped in September before the stock pulled back following a disappointing holiday sales outlook.
Shares of Amazon (AMZN) are currently trading at around $1,720, giving the company a market value of about $840 billion. The stock is up nearly 50% this year but it has tumbled more than 15% from its record highs.
But Scott Devitt of Stifel thinks the pullback since Amazon’s earnings report in October was overdone.
Amazon is no longer just a retailer
Devitt pointed out that as Amazon matures, it’s more important to focus on earnings instead of sales. He said guidance for Amazon’s fourth-quarter profit margins still look solid, even after the recent boost in wages for Amazon workers.
Still, isn’t it almost heretical to say that profits matter more than sales for a company that many still consider to be, first and foremost, a retailer?
Not really. Devitt said he thinks “revenue growth is becoming a less relevant metric for Amazon given the outsized growth of the company’s cloud and advertising businesses.”
In other words, Amazon has morphed into a company that is competing more with the likes of Microsoft (MSFT) and Google owner Alphabet (GOOGL) and not just other retailers like Walmart (WMT).
Devitt has a price target on Amazon of $2,400 a share. That’s nearly 40% above where it’s trading now — and it would make Amazon worth about $1.2 trillion.
D.A. Davidson’s Tom Forte is even more bullish. He has a target price of $2,450 for Amazon. Forte also thinks investors overreacted to the latest results. He seemed to suggest that investor expectations are way too high for Amazon.
The company’s not perfect. Forte titled his report “Even LeBron Misses Free Throws” — a reference to Los Angeles Lakers star LeBron James. (I would have used Golden State’s Steph Curry as a better example, given his 90.4% free throw percentage to LeBron’s 73.9%. But I digress.)
Forte thinks Amazon’s aggressive plans to open up even more physical stores is a smart move that will pay off.
“This is especially important for the upcoming holiday season as we believe one of Amazon’s most important lessons from last year was the importance of physical retail locations in maximizing holiday sales,” Forte wrote.
Amazon is the bluest of blue chips — almost everyone owns it
Analysts aren’t the only ones infatuated with Amazon.
Rich Hagen, president of online brokerage Ally Invest, said Amazon is the top-traded stock for its Millennial users and is also the most popular stock for Gen X and the Silent Generation (people born before World War II.) It’s the second most actively traded stock for Baby Boomers.
Whether or not that means Amazon’s stock will come roaring back anytime soon, remains to be seen. But it’s clear that Amazon is an obsession for both Wall Street and Main Street.
