While $2,000 per share sounds outrageous today, it’s merely my way of saying Amazon (NASDAQ:AMZN) stock has a lot more upside. And, it will not stop there. The recent rhetoric is so negative that it’s hard not to chuckle at my statement. But I am not alone in this opinion — almost all analysts who cover it have a “Buy” rating on Amazon stock. And their average price target is just under $2,300 per share.
This opinion also extends to Main Street. If we conduct a survey asking people for their top-10 lists of companies that were most significant in the last decade, AMZN would definitely make everyone’s list. This is a company that faced challenges for years for the way it did business. It silenced all naysayers. Critics kept shorting the Amazon stock and losing.
Now, and in hindsight, it is clear that what the company accomplished was simply amazing — and AMZN stock is proof of it. There were a slew of casualties, and not only on Wall Street. Amazon left in its wake devastation in many industries, most notably in the brick-and-mortar retail sector.
In some cases it’s not so much that AMZN directly stole sales but rather that it changed the global shopping patterns from in-store to online. And companies like Macy’s (NYSE:M) waited too long to react and paid dearly.
Amazon Stock Is Still a Buy for the Next 10 Years
There is little doubt that Amazon stock will continue its incredible ramp. It is up 427% in five years, and it is up four times as much in ten. Year-to-date it is lagging a little since it’s up only 21%. Facebook (NASDAQ:FB) and Apple (NADAQ:AAPL) are up 40% and 34%, respectively. Nevertheless, AMZN is still out-performing the S&P 500 and is in line with the Nasdaq QQQ Invesco ETF (NASDAQ:QQQ).
Under the leadership of Jeff Bezos, the Amazon team will continue to flawlessly execute their growth plans. So I expect nothing else but higher stock prices in the future. So for that purpose, owning Amazon stock now is a viable bullish thesis and not likely to be a financial mistake in the long run.
Yes, fundamentally it looks expensive on paper as it sells at a 74 trailing price-to-earnings ratio. This is more than twice as expensive as Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and three times as expensive as Apple. But the difference is that Amazon keeps adding to its income streams. To that point, AMZN sells at only 3.5 times sales which is two times less than FB.
AMZN has a new cash cow with its Amazon Web Services unit. This is in addition to its older core businesses. And I am sure they have many more verticals that they are grooming. Just look at what happened to FedEx (NYSE:FDX) stock. They also are the leader in voice command. Alexa is going to find its way into every machine around us.
So Amazon has enough cash flow to continue to fuel its growth even better than before to dominate many more verticals. With the advent of artificial intelligence, voice and drone applications, I am confident that the Amazon stock will be higher in the future.
It is important to note that in the short term AMZN needs to hold above $1,720 and $1,680 or else it could trigger a couple of bearish patterns that would target the low $1,500’s. While this is not a forecast, it is a neckline that bulls need to defend. If this happens, it won’t change the overall bull thesis.
Also important to note is that there are still so many geopolitical risks. So don’t jump in all at once. But down 11% from its highs, this is a good place to add a position in Amazon stock. The options markets also provide easier ways to accomplish this.
I can sell an AMZN leap put or put spreads 30% below current prices and participate with gains without even needing a rally. It is important to note though that I never sell naked puts unless I intend to own the shares at that level. I could alternatively buy leap calls but that would bring the risk of time into the picture. I prefer selling premium so I don’t even need upside action to win. Owning calls causes me to rely too much on upside “hopium.”
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
