Most of us want to own the “next big thing” in the stock market. It’s human nature. Once in a while though, something old retains its luster as an exciting investment opportunity. Today that looks very true for Amazon (NASDAQ:AMZN) stock.
With that in mind, let’s examine why AMZN stock is shaping up for investors off and on the price chart. After this analysis, I’ll offer a risk-adjusted determination aligned with those findings.
The Latest Story Behind AMZN Stock
Over the course of the Covid-19 pandemic, there has likely been no single company that has proven itself more important for consumers and businesses than Amazon.
But none of them are Amazon. Not by a country mile.
From its doorstep deliveries of essential and more frivolous goods, cloud services or streaming entertainment, Amazon has been without equal.
Yet for all that Amazon has given us, literally and figuratively, AMZN stock hasn’t exactly delivered a moonshot trajectory from its Covid-bottom. It hasn’t demonstrated performance worthy of space cowboy — and former Amazon CEO — Jeff Bezos yelling “to infinity and beyond!”
For Amazon investors taking a cue from the “buying what you use” strategy popularized by legendary Fidelity fund manager Peter Lynch, AMZN stock is up 16% from its March bear market low. That’s nothing to sneeze at. But to be fair the large-cap, tech-heavy Nasdaq is up close to 20%.
What’s more, its trillion-dollar peers Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) are uniformly beating the benchmark average — and, obviously, Amazon by an even wider margin.
So, what gives? Does Jeff Bezos need to start making Prime Now deliveries aboard his new rocket ship for AMZN stock to catch up? Not quite.
What to Expect from AMZN Moving Forward
To be fair, unsettling anti-trust threats aimed at Amazon still lurk in the background. But it’s not like Amazon is outperforming its large-cap tech compadres, which don’t have targets on their backs either. Each of them do. AAPL, GOOGL and Facebook (NASDAQ:FB) are all under various sniff tests from regulators.
But what might set Amazon apart in a more challenging way is the Federal Trade Commission’s new chair Lina Khan. Back in 2017, the FTC head notoriously published a seminal article, “Amazon’s Antitrust Paradox” in the Yale Law Journal.
Still, without getting too ahead of ourselves, it’s important to remember even the best stocks correct all the time. Today that’s a very relevant feature for AMZN stock, which is still checking all those other critical boxes growth stock traders demand.
A Deep Look At Amazon’s Weekly Price Chart
Source: Charts by TradingView
Regulatory jitters. Life after Covid. If you’re wanting to point fingers, those are two of the more prominent excuses embedded in Amazon’s year-long flat and underperformance.
But it’s far from all bad news.
First, worries like today that are hanging over AMZN generally have a way of getting swept under the carpet or simply not being all that they’re cracked up to be. Those factors have helped with building an overall healthy base.
As the provided monthly chart of Amazon reveals, shares are lined up with a second breakout attempt of its year-long, high-level double-bottom base. In of itself, the pattern is fully capable of producing an outsized rally. But a purchase might just lead to something more too.
If we’re to trust some recent coverage on AMZN stock from The Moley Fool, today’s imminent breakout could turn into a sizable $10,000 per share by 2025 based on cash flow projections. That’s an increase of about 185% from today’s near-$3,500 stock price.
In other words, a move from $3,500 to $10,000 works out to a compounded return of roughly 26.50%.
Regardless of whether you’re in AMZN stock for a breakout or tracking some future achievement, I’d look to use Amazon’s calls and puts.
With liquid options markets ranging from shorter-term Weeklys out to long-term contracts into 2024, capitalizing on the upside in AMZN using a limited and defined risk vertical or actively managing a synthetic collar variation over time looks like smart business for investors.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.