Amazon stock was trading flat in the early price action on Aug. 12 and is up only about 3 percent for the year. It has fallen over 13 percent from the 52-week highs and is the second-worst performing FAANG stock of 2021. Why is AMZN stock going down and should you buy or sell it now?
Amazon stock has largely traded sideways over the last year. As the rally in “stay-at-home” stocks faltered, AMZN has also looked weak. Investors have instead pivoted towards cyclical and value stocks.
Why is Amazon stock going down?
Firstly, there has been a visible shift from growth names to value stocks and Amazon ticks the wrong boxes. Also, from a company-specific perspective, Amazon’s Q2 2021 earnings disappointed markets. While the company posted better-than-expected profits, its revenue growth was below what analysts were expecting.
It was the first revenue miss from the company in three years. To make matters worse, its Q3 2021 guidance also fell short of estimates. Markets saw the tepid guidance as a sign that the high growth rates of 2020 are over for Amazon.
To be sure, it's largely accepted that the boom of 2020 for companies like AMZN wasn’t sustainable. The company also referred to tougher year-over-year comparisons in the back half of 2021 alluding to the pandemic-driven high growth rates of 2020.
AMZN stock forecast
Wall Street analysts are quite bullish on AMZN stock and all 30 analysts polled by TipRanks gave rated it as a “buy” or some equivalent. Its average target price of $4,214.3 is a premium of 28.5 percent above current prices. Meanwhile, while Amazon stock has seen a sell-off after the earnings, several brokerages have reiterated their bullish bets on the stocks.
Cowen, for instance, reiterated its “overweight” rating and said that it sees the $1.2 trillion grocery market in the U.S. as a key driver for Amazon. Morgan Stanley also reiterated its “overweight” rating on AMZN and is particularly bullish on the massive investments that the company is making in logistics.
“While we believe part of this investment is related to ‘catching up’ to outsized demand from 2020, we believe part of it is related to new initiatives to drive continued durable multi-year growth,” said Morgan Stanley in its note.
Should you buy or sell Amazon stock now?
Amazon stock has looked weak and the recent weakness looks like a good buying opportunity. The company has a strong business model and the e-commerce platform has a good moat. Amazon provides a complete ecosystem to consumers which is tough to emulate. Also, the company’s international e-commerce operations have started to contribute positively to the operating income.
Amazon’s cloud business is another key value driver. As the most profitable business vertical, the cloud has been the typical cash cow for Amazon. Cloud and e-commerce are two of the promising investment themes and AMZN has strong positions in both of them. AMZN stock trades at an NTM (next-12 month) PE multiple of just over 58x which looks very attractive.
From a technical perspective, Amazon stock is holding on to the 200-day SMA (simple moving average) which is a bullish sign. The stock is also getting near the oversold zone with a 14-day RSI (relative strength index) of 32.