Amazon.com, Inc. (NASDAQ:AMZN) Stock Will Shoot at Least 15% Higher

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AMZN - Amazon.com, Inc. (NASDAQ:AMZN) Stock Will Shoot at Least 15% Higher

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Amazon.com, Inc. (NASDAQ:AMZN) is up 3% year-to-date, barely finding itself in the top quarter of performers in the Nasdaq-100. Of course, AMZN stock has gone on a 45% rally since it bottomed in February, making it one of the strongest comeback stocks over the past three months — so it’s not like Amazon has been a laggard.

Amazon.com, Inc. (AMZN) Stock Will Shoot at Least 15% Higher

The question from here, of course, is whether there’s enough gas in the tank for Amazon stock to head higher?

We sure think so.

First, That Little Valuation Thing

The first thing that every AMZN naysayer yells is “The stock is overvalued!” Of course it is, if you apply normal standards — a price-to-earnings ratio of 130 is way overbought — but Amazon.com is far from normal.

Maybe a better question is: Do P/E ratios really mean that much?

Think about this: Alphabet Inc (GOOG, GOOGL) traded at 783 times earnings in January 2015. Talk about overvalued! And yet, the person screaming at their screen and refusing to buy because of that P/E missed out on 40%-plus returns last year.

We’re not saying that P/E doesn’t matter. We’re just saying that you shouldn’t try to strictly apply P/E ratios to growth stocks. Use it to get a deal on a value dividend investment instead.

The Actual Bull Case for AMZN Stock

Valuation is a reason to not exclude Amazon from consideration. Now let’s talk about why you should buy the stock.

Amazon’s last quarter of earnings data continued a trend that’s long been in place: AMZN is taking more business from traditional retailers. Soup to nuts, Amazon offers it all, and now it’s working toward owning the supply channels that get those products to us. From the producer to the doorstep, Amazon is on a course to deliver the entire experience — plus so much more.

These fundamentals are filtering down to the top and bottom lines. Amazon grew profits by 28% year-over-year to $1.07 per share, beating Wall Street’s expectations by 78%. That’s a heck of a comeback from last quarter’s earnings miss (though even that quarter still saw YoY revenue growth of 21%). Granted, much of the bottom-line performance is being driven by success in Amazon Web Services and not its traditional e-commerce line … but that’s just another pro for AMZN stock, not an argument against.

Amazon’s venture into developing its own logistics network is in full action — this will weigh on expenses, but the offsetting long-term gains are likely to be discounted into the stock sooner rather than later.

From a technical perspective, AMZN stock remains well in bull market territory; shares are trading above their 20-month moving average, which also is trending higher. Amazon shares took out their old highs (from 2015) after the latest earnings results and are gaining momentum again.

AMZN stock chart

As we’ve written about, the summer months bring with them volatility and low prices for the broad market. Interestingly, AMZN stock typically avoids this pattern as it remains strong through the seasonally weak period of May through September. On average, Amazon posts average returns for this period of more than 15% since 1997.

In other words, Amazon stock bucks summer’s seasonality trends.

Bottom Line

We wouldn’t buy AMZN at $700 per share, but the upside potential of 15% through the summer has us interested as buyers on any dips. With technical support at the $675 level, it might pay to be a little patient before grabbing Amazon for your portfolio, but don’t wait too long.

This overvalued stock appears ready to become even more overvalued this summer.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/amazon-amzn-stock-15-percent-upside/.

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