Amazon: Why Analysts Believe It's a Strong Buy Before Earnings

Amazon.com Inc (NASDAQ: AMZN) has had an interesting year so far. After enjoying a strong rally leading up to April, the stock faced significant ups and downs over the summer. However, it is now trading once again at similar levels to those seen in April, despite reaching an all-time high in July. Since August, Amazon's shares have rallied nearly 25%, and they are currently just 8% shy of their all-time high of $200, as they approach next week's earnings report.

The company, with a market cap of $2 trillion, remains a leader in both the e-commerce and cloud computing sectors. The outlook for Amazon is notably positive, with several reasons to consider it as a solid buy, regardless of the results that come out next week. Here’s a deeper look into the factors supporting this view.

Consistent Fundamental Performance

One of the key aspects to highlight is Amazon's track record of delivering strong earnings. In its August report, the company surpassed analysts' expectations, achieving its third-highest revenue ever. Furthermore, Amazon's profitability has continued to improve, with August marking its highest earnings per share (EPS) in three years. As we look ahead to next week's earnings announcement, there is potential for another record revenue figure that could exceed last year’s total of $170 billion.

Bullish Analyst Updates

In addition to its solid fundamentals, Amazon has attracted bullish sentiment from analysts. Almost all analysts who have provided updates on the stock recently are optimistic, with nearly all but one rating Amazon a Buy. This strong analyst consensus distinguishes Amazon from many other tech stocks.

This month alone, analysts from Needham & Company, Loop Capital, JMP Securities, and Evercore ISI have reiterated their Buy ratings. The general belief is that Amazon’s underperformance compared to the broader market gives investors a great opportunity to buy in. For instance, JMP Securities has set a price target of $265, suggesting an upside potential of over 40% from current levels, which could push Amazon shares to new all-time highs.

Potential Concerns

While the sentiment around Amazon is predominantly positive, there are some factors investors should consider. The company's price-to-earnings (P/E) ratio stands at 44, which may seem high compared to other technology giants such as Alphabet (NASDAQ: GOOGL) at 23, Meta Platforms (NASDAQ: META) at 29, and Apple (NASDAQ: AAPL) at 35. This relatively high valuation may give some investors pause, especially since Amazon’s stock has struggled to recover its all-time highs while the S&P 500 index continues to reach new highs.

Moreover, Wells Fargo recently downgraded Amazon's rating from Overweight to Equal Weight, citing valuation concerns despite maintaining that the stock's upward trend remains strong due to continued growth and strategic investments in areas like AI and cloud services.

Getting Involved

The final indicator supporting the bullish case for Amazon is its technical setup. Currently, Amazon's relative strength index (RSI) is at 46, suggesting there is still substantial room for price appreciation. The RSI is an important technical measure of momentum, where readings above 70 indicate a stock is overbought, while below 30 indicates it is oversold.

Given that Amazon's RSI is closer to the oversold end of the spectrum, this could be a prime buying opportunity. While investing in a stock before earnings carries inherent risks, the overwhelmingly positive outlook surrounding Amazon suggests that any significant surprises would need to be exceptionally negative to offset the current bullish momentum.

Amazon, Analysts, Stocks