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Here's Why Amazon (AMZN) Stock Looks Like A Strong Buy Right Now

Benjamin Rains

Much of the news surrounding Amazon AMZN Thursday centered around CEO Jeff Bezos’ pending divorce to his wife of 25 years. Some investors might be nervous that this could somehow impact the e-commerce giant, but that seems highly unlikely. So today we are taking a look at why Amazon stock appears to be a strong buy at the moment.

Overview

Amazon is coming off its worst quarter since 2008, as fellow giants Apple AAPL and much of the market also suffered to close 2018. Bezos’ firm, of course, can’t simply blame its 25% drop off to close the year on the larger downturn. Instead, investors likely dumped AMZN stock because the company finally showed signs of a top-line slowdown in the third quarter.

The firm’s third-quarter revenues still climbed 29% to hit $56.6 billion. But last quarter marked a significant slowdown compared to the e-commerce giant’s recent growth, which includes Q2’s 39% surge and Q1’s 43% climb. Going forward, investors will likely have to treat Amazon a bit differently as it enters what could be a new stage of slower, more stabilized top-line growth.

Still, despite the revenue slowdown, 41 of the 42 analysts with ratings on AMZN stock have it as a buy at moment, according to FactSet.

 

Growth Possibilities

Amazon’s share of the U.S. e-commerce market is projected to have reached 50% last year, up from 44% in 2017. Plus, the Seattle-based firm’s higher-margin, third-party seller business has grown. Last quarter, Amazon’s third-party seller services surged 31% to reach $10.39 billion. Meanwhile, Amazon’s online store sales jumped just 10% to $29.06 billion.       

On top of that, Amazon Web Services, its cloud computing unit, grabbed 35% of the cloud infrastructure services market last quarter. This helped AMZN crush second-place Microsoft’s MSFT roughly 15% share, as well as IBM IBM, Google GOOGL, and Alibaba BABA. Plus, AWS revenues surged 46% last quarter, 49% in Q2, and 48% in the first quarter.

Meanwhile, Amazon’s high-margin subscription business has skyrocketed over 50% in each of the past four quarters. Amazon is also expected to become the third-largest digital advertiser behind only Facebook FB and Google, with its market share projected to expand for years to come as more consumers begin their product searches across Amazon’s platforms. 

Outlook & Earnings Trends

Looking ahead, Amazon’s earnings look ready to surge. Amazon’s adjusted Q4 earnings are projected to soar 153.7% above the prior-year quarter to reach $5.48 per share, based on our current Zacks Consensus Estimate. AMZN’s full-year earnings are expected to skyrocket 328.6%. Investors should also note that Amazon’s fiscal 2019 EPS figure is projected to come in 35% higher than our current-year estimate.

The company has also seen some positive earnings estimate revision activity within the last seven days, which helps it earn its Zacks Rank #1 (Strong Buy). Investors should remember that earnings growth has been proven to be one of the best long-term indicators of positive stock price movement.

And it is not like Amazon’s top-line is expected to fall off a cliff. The company might simply have become the victim of its own success, which makes it harder to post huge year over year growth results on a percentage basis.

Amazon’s Q4 revenues are projected to climb 18.5% from the year-ago period to hit $71.61 billion. Peeking ahead, Amazon’s fiscal 2019 revenues are projected to jump just 20.5% above our current-year estimate to reach $280.36 billion.

 

Bottom Line

Shares of Amazon hovered around $1,657.73 Thursday. This marked a roughly 19% downturn from their 52-week high and could be all the incentive some investors need to buy AMZN stock in anticipation of a 2019 comeback.

Amazon is likely to continue to expand its e-commerce reach, while it also grows its brick-and-mortar business in order to further challenge the likes of Walmart WMT and Target TGT. Plus, its higher-margin AWS, advertising, and other subscription-based businesses seem ready to make Amazon a more profitable firm.

Let’s also remember that AMZN is ready to become one of the biggest streaming entertainment companies in the world, as it expands into live sports in order to better compete against Netflix NFLX and soon enough Disney DIS, Apple, and AT&T T.

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