Here’s what to know beyond why Amazon.com, Inc. (AMZN) is a trending stock

Amazon (AMZN) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this online retailer have returned -4.1%, compared to the +0.2% change in the Zacks S&P 500 composite. During this period, the industry Zacks Internet – Commerce, of which Amazon is a part, lost 4.2%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Amazon is expected to post earnings of $9.33 per share for the current quarter, representing a year-over-year change of -40.9%. Over the past 30 days, the Zacks consensus estimate has remained unchanged.

The consensus earnings estimate of $52.22 for the current fiscal year indicates a year-over-year change of -19.4%. This estimate has remained unchanged for the past 30 days.

For the next fiscal year, the consensus earnings estimate of $76.02 indicates a change of +45.6% from what Amazon is expected to report a year ago. Over the past month, the estimate has changed by +101.3%.

With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent shift in the consensus estimate, along with three other factors related to earnings estimates, resulted in a Zacks No. 3 (hold) ranking for Amazon.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

In the case of Amazon, the consensus sales estimate of $117.02 billion for the current quarter indicates a year-over-year change of +7.8%. Estimates of $541.38 billion and $634.18 billion for the current and next fiscal year indicate changes of +15.2% and +17.1%, respectively.

Latest reported results and history of surprises

Amazon reported revenue of $137.41 billion in the last quarter, representing a year-over-year change of +9.4%. EPS of $27.75 for the same period versus $14.09 a year ago.

Compared to the Zacks consensus estimate of $137.88 billion, reported revenue is a surprise -0.34%. Surprise EPS was +613.37%.

In the past four quarters, Amazon has exceeded consensus EPS estimates three times. The company exceeded consensus revenue estimates only once during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.

Amazon is rated C on this front, indicating that it trades at par with its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Amazon. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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