Is Trending Stock Amazon.com, Inc. (AMZN) a buy it now?
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 -8.5%, compared to the -5.5% change in the Zacks S&P 500 composite. During this period, the industry Zacks Internet – Commerce, of which Amazon is a part, lost 8.4%. 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
Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
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.
For the current quarter, Amazon is expected to post earnings of $0.29 per share, indicating a -6.5% change from the prior year quarter. The Zacks consensus estimate has changed by +10.1% in the last 30 days.
For the current year, the consensus earnings estimate of $0.19 indicates a change of -94.1% from the prior year. Over the last 30 days, this estimate has changed by +1.3%.
For the next fiscal year, the consensus earnings estimate of $2.24 indicates a change of +1,076.8% from what Amazon is expected to report a year ago. Over the past month, the estimate has changed by +3.1%.
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 change 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
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase its revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.
In the case of Amazon, the consensus sales estimate of $128.19 billion for the current quarter indicates a year-over-year change of +15.7%. Estimates of $523.93 billion and $605.37 billion for the current and next fiscal year indicate changes of +11.5% and +15.5%, respectively.
Latest reported results and history of surprises
Amazon reported revenue of $121.23 billion in the last quarter, representing a year-over-year change of +7.2%. EPS of $0.10 for the same period versus $0.76 a year ago.
Compared to the Zacks consensus estimate of $119.67 billion, reported revenue is a surprise +1.31%. The surprise EPS was -33.33%.
In the past four quarters, the company has exceeded EPS estimates only once. The company exceeded consensus revenue estimates only once during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Amazon is rated D on this front, indicating that it trades at a premium to its peers. Click here to see values for some of the rating metrics that led to this rating.
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.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
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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.