Big Tech company Amazon (NASDAQ: AMZN) has seen its share price jump. Year to date, the stock’s up about 21%.
I reckon the stock – which is currently my second-largest holding – has the potential to keep rising in 2024. Here are three reasons I’m bullish on it right now.
Strong momentum
Let’s start with the fact that the company’s firing on all cylinders. Earlier this week, Amazon posted its Q1 results, and the numbers were excellent.
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For the quarter, net sales were up 13% year on year to $143.3bn with cloud and advertising revenues up 17% and 24% respectively. Profits were up significantly with operating income rising 219% to $15.3bn and net income jumping 216% to $10.4bn, or 98 cents a share.
Overall, the results showed that the company – which has cut its costs dramatically over the last 12 months – has a lot of momentum. I was very pleased with them.
Attractive valuation
Next, we have the stock’s attractive valuation. At present, Wall Street analysts expect Amazon to generate earnings per share (EPS) of $4.38 (this time last week, the forecast was $4.13) for 2024 versus $2.90 in 2023. That puts the stock’s forward-looking price-to-earnings (P/E) ratio at around 42.
Now, at first glance, that seems like a high valuation as it’s roughly twice the US market average. However, looking at the forecast rate of earnings per share growth, which is 51%, the valuation isn’t high at all.
Currently, the price-to-earnings-to-growth (PEG) ratio is less than one. And a ratio of one or less typically indicates that a stock’s cheap.
Room to run
Finally, it’s worth talking about the share price. While Amazon shares have had a great run recently, they are not much higher than they were in late 2021. This is despite earnings having increased substantially since then.
Given that other Big Tech stocks like Microsoft and Meta are now well above their 2021 highs, I think Amazon shares have some catching up to do.
One thing that could help the stock here in the quarters ahead is a dividend. If the company was to follow in the footsteps of Meta and Alphabet and announce a maiden dividend payment, I’d expect the share price to soar.
I’m bullish
Now, of course, there’s no guarantee the stock will continue upwards in 2024. One factor that could derail things is higher interest rates. If bond yields climb in the months ahead, tech stocks like Amazon could come under pressure.
Another risk is an economic slowdown. This could potentially impact Amazon’s online shopping, cloud computing, and advertising businesses.
All things considered though, I think the stock offers an attractive risk/reward proposition. I’m very comfortable having it as one of my largest individual stock holdings.
