Is Amazon worth US$3,500 a share?

US e-commerce giant Amazon.com (NAQDAQ: AMZN) is due to report its second quarter 2020 financial results at 14:30 PT on Thursday 30 July.

Below, we highlight three key considerations that investors should pay attention to ahead of Amazon’s upcoming earnings report.

Amazon hit an all-time high stock price on 20 July 2020

Amazon’s share price has soared as much as 67% since early April 2020, with investors flocking to the technology stock as the Covid-19 pandemic worsened.

Stocks of online retailers and digital services like Amazon have particularly benefitted from the pandemic, with these companies expected to increase their earnings and growth rates as more people are forced to stay home (under official orders) and use online services.

As a comparison, rival e-commerce company eBay has seen its share price burgeon over 105% during the same period.

For Amazon, the expected lift in consumer spend amid volatile times has in turn boosted investor sentiment. This allowed the stock to hit a historic high price of US$3,334 per share on 13 July 2020.

As of Monday 27 July 2020, Amazon was trading at US$3,064 per share. This share price represents a price-to-earnings ratio of 145.97, which is still below the stock’s five-year average of 213.77.

Throughout the month of July 2020, the stock has been trading no less than a PE ratio of 137.50.

Analysts say Amazon remains a ‘safe yielding’ tech stock

Across the board, Amazon currently has an average rating of ’buy’ from 49 brokers, based on Refinitiv data.

With regards to Amazon’s recent share price trends, IG analyst Monte Safieddine explains that ‘companies with healthy balance sheets expected to weather the coronavirus pandemic’, such as Amazon, have emerged as ‘outperformers’.

However, he noted that Amazon has been trading at a far higher P/E ratio than its remaining FAANG peers. IG’s client analysis also shows that retail bias remains in extreme long territory at 90% on the Amazon counter at present, higher than the buy bias held by most of the remaining FAANG stocks.

Saffiedine added that ‘while the technical overview is bullish, it's been a stronger case on weekly technicals compared to daily technical levels, as the current bullish overview stalls a bit in the short-term’ with other major players’ earnings due to be released this week.

In the mid to long term, Saffiedine posits that Amazon remains a ‘relatively safe yielding tech company’, as ‘any lack of alternatives on the investing front with stimulus failing to subside on both the monetary and fiscal policy front in the US would force investors hungry for returns into buying its stock’.

In terms of price predictions, Craig Johnson, senior technical research analyst at Piper Sandler, told CNBC earlier this month that Amazon’s share price is potentially headed for US$3,400 to US$3,500 ‘at minimum’, citing the Q2 earnings momentum as a factor.

Amazon’s earnings missed estimates in three of last four quarters

Analysts polled by FactSet have given a consensus EPS estimate of US$1.48 per share alongside expected revenues of between US$75.2 billion and US$91.1 billion for the platform’s Q2.

Amazon itself is expecting revenue to grow between 18% and 28% year-on-year to between US$75 billion and US$81 billion. This puts the company’s own guidance on par with industry expectations.

It also expects operating income to be in a range of between negative US$1.5 billion and a surplus of US$1.5 billion, compared with US$3.1 billion reported in the second quarter 2019. This guidance also assumes approximately US$4 billion of costs related to Covid-19 protection for employees.

For existing shareholders, it is probably also worth noting that the company has fell under EPS and projections in three of the last four reporting quarters. However, reported revenue surpassed Wall Street estimates for the same time period.

Amazon’s EPS for the last quarter (Q1 2020) missed analyst predictions by 18.74%. Reported sales however surpassed expectations by US$2 billion.

How to trade Amazon with IG

Are you feeling bullish or bearish on the Amazon stock? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <Amazon.com Inc (All Sessions)> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade