Amazon: Analysts Favor Strong Buy Ahead of Earnings Report

Shares of Amazon.com Inc NASDAQ: AMZN have experienced a unique year. After a solid rise through April, the stock faced notable volatility during the summer months. Currently, it's trading back at levels reminiscent of April, even after reaching an all-time high in July. Since August, Amazon shares have surged nearly 25%, and they are now just 8% away from hitting their all-time high of $200 as they prepare for next week’s earnings report.

With a market capitalization of $2 trillion, Amazon, based in Seattle, continues to dominate both the e-commerce and cloud computing sectors. As we explore below, there is a strong consensus among analysts that Amazon represents a solid buy, regardless of the upcoming earnings results.

Consistent Financial Performance

First and foremost, Amazon has consistently performed well in its earnings reports. In August, the company not only met but exceeded analysts' expectations, reporting its third-highest revenue ever.

Additionally, Amazon's profitability has been on the rise, with that August report marking its highest earnings per share (EPS) in three years. The upcoming earnings announcement is anticipated to continue this positive trend, offering the potential for record revenue that may surpass last year’s total of $170 billion.

Positive Analyst Perspectives

Building on Amazon's strong fundamentals, many analysts are expressing bullish sentiments about the stock, highlighting significant upside potential.

Recently, Needham & Company reaffirmed their Buy rating, aligning with optimistic positions from other firms such as Loop Capital, JMP Securities, and Evercore ISI. Notably, nearly all analyst updates in October have rated Amazon a Buy, distinguishing it from other tech stocks with a remarkably positive consensus.

A recurring theme across these evaluations is the perception that Amazon's recent underperformance against the broader market presents a prime buying opportunity. Analysts believe the risk/reward balance ahead of the earnings report is highly favorable. For instance, JMP Securities has set a price target of $265, suggesting more than 40% upside from current prices. This projection indicates that Amazon could trade at new all-time highs.

Potential Risks

Although the outlook remains bright, potential investors should consider some challenges. Amazon's current price-to-earnings (P/E) ratio of 44 is relatively high compared to peers like Alphabet Inc (P/E of 23), Meta Platforms Inc (P/E of 29), and Apple Inc (P/E of 35).

This elevated valuation may deter some investors, especially since Amazon's stock has struggled to regain its all-time highs while the S&P 500 has been reaching new levels since September.

Moreover, despite the overall bullish sentiment, some analysts, like those from Wells Fargo, have taken a more conservative stance by downgrading Amazon from Overweight to Equal Weight due to valuation concerns. Nonetheless, even with this cautious outlook, the stock’s upward trend is supported by ongoing growth and Amazon’s strategic investments in AI and cloud services.

Conclusion

The final factor bolstering the positive sentiment surrounding Amazon is its favorable technical setup. Currently, the stock's relative strength index (RSI) stands at 46. This level indicates substantial room for improvement, with RSI values above 70 typically signaling an overbought condition and values below 30 indicating an oversold situation.

Given that Amazon's RSI is closer to the lower end, it suggests that we might be approaching a significant entry point. While there is always inherent risk when buying stocks before earnings reports, it would require a significant negative surprise to diminish the overwhelmingly positive momentum and outlook currently surrounding Amazon's stock.

Amazon, Analysts, Earnings, Stocks