After an initial pop, Amazon (NASDAQ:AMZN) got off to a sluggish start in 2019. Trading sideways from early January to early March, Amazon stock felt like dead money. Then it found some momentum, maintained that momentum after earnings in April and has been off to the races since.
Now it’s threatening to run back up to its prior all-time highs. I think it will get there, pending a broader market correction going into the summer. The company is simply too much of a conglomerate juggernaut to be stopped.
As much as investors want to say AMZN stock is overvalued, that thesis has never been relevant. It’s been much more expensive in the past when it was profitless and that didn’t stop the stock from rallying thousands of percent of the years.
Like a few others, such as Netflix (NASDAQ:NFLX) or Tesla (NASDAQ:TSLA), Amazon has never been tethered by its valuation. That said, one could argue that decelerating growth is one concern for Amazon.
Valuing Amazon Stock
Current estimates call for roughly 18% revenue growth both this year and next year. That of course, isn’t bad, but it’s below the 20%+ growth we’ve seen for years from Amazon. The last time its growth story started to slow, the company really began hitting its stride with Amazon Web Services.
This propelled Amazon, but not only for its revenue. While the sales boost was nice, AWS was single-handedly jolting the company’s bottom line higher. All of sudden Amazon was profitable, although not in the way that a traditional valuation would support its market cap based on those profits.
It didn’t matter though, because a profitable AWS allowed Amazon to focus on other aspects of its business and continue dominating the ecommerce game.
It now has a robust business in ecommerce, advertising and the cloud. Its home products like Alexa have taken on a life of their own, and suddenly the company looks like an unstoppable juggernaut. And so long as it keeps growing that bottom line and the economy doesn’t enter a recession, bears will continue struggling to pull this name down.
Analysts expect 34% earnings growth this year to $27.14 per share. In 2020 estimates call for an acceleration to 40% earnings growth to $38.14 per share. This isn’t an earnings story, but it’s encouraging to see that AMZN stock is at least strong bottom-line growth.
It’s worth noting that Amazon has beat earnings estimates for seven straight quarters although, to be fair, has missed revenue estimates in three of the last four. Last quarter, earnings of $7.09 per share came in $2.41 per share ahead of estimates. That’s a 51% beat! In fact, Amazon has beat earnings estimates by more than 50% in four of the last five quarters.
Trading AMZN Stock
Click to Enlarge
Back in March, we flagged the big breakout in Amazon stock. Shares are up more than $250 apiece since then and the strength we saw on Monday is impressive. The market took a big hit at the open on worries over an escalating trade war with China, but AMZN stock powered higher. In the prior session, we saw a notable gap-up after Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) took a position in the ecommerce giant.
So what now? To an extent, the broader market will be a big driver to Amazon stock. That’s not unusual and while AMZN can outperform or underperform the broader indices at any given time, a pickup in volatility could create a headache. Conversely, the markets shrugging off any trade worries and going higher will almost surely propel AMZN stock higher.
Should Amazon stock continue higher, look for it to test channel resistance near $2,000. At those levels, its prior highs at $2,050 and $2,033 will be a stone’s throw away. Those prices could happen this week or in July and there’s really no way of knowing.
See that Amazon stock stays above the 20-day moving and/or uptrend support. Above those marks and AMZN stock should continue to drift higher. Below and it opens the door to a test of the 50-day moving average. Just below the 50-day is the $1,750 to $1,800 area, which should act as support on a larger pullback. Near $1,750 is the 200-day moving average as well.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AMZN.
