Amazon (NASDAQ: AMZN) shares have underperformed this year. While major stock market indexes such as the S&P 500 and the FTSE 100 have climbed higher, Amazon’s share price has actually fallen.
Is now a good time to buy Amazon shares? Here’s my take.
Why Amazon’s share price has stalled
Amazon’s share price weakness this year is not so surprising. For starters, the stock delivered huge gains last year, rising from $1,848 to $3,257. After that kind of performance, a pullback, or period of consolidation, was always a possibility.
Should you invest £1,000 in Associated British Foods right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Associated British Foods made the list?
Secondly, with Covid-19 vaccines being rolled out, all the attention is on reopening stocks such as airlines right now. Big Tech stocks that did well during the pandemic generally aren’t so popular.
Buying opportunity
I’m looking at the current share price weakness as a buying opportunity. Amazon’s recent first-quarter 2021 results were very strong and smashed Wall Street’s expectations. For the quarter, e-commerce growth was 44%. Meanwhile, growth in the cloud computing division was 32%. Earnings per share came in at $15.79, versus $5.01 in Q1 2020.
Looking ahead, I expect Amazon to deliver powerful growth in the long run. Its two key markets, e-commerce and cloud computing, are projected to grow substantially over the next decade. This growth should provide tailwinds. In five years’ time, I think Amazon is likely to be much bigger than it is today.
Amazon stock forecast
It’s worth noting that after the company’s Q1 results, over 20 analysts increased their share price targets for the stock. Pretty much every one of them lifted their target to $4,000, or higher. One analyst even went to $5,500.
Currently, the average stock price forecast for Amazon is $4,245. That’s about 33% above the current share price. This reinforces my view that now’s a good time to buy the stock.
Valuation
Turning to the valuation, Amazon stock isn’t cheap by traditional valuation measures. Currently, it sports a forward-looking price-to-earnings (P/E) ratio of about 58. That’s almost three times the median S&P 500 forward-looking P/E ratio.
However, history shows that not buying Amazon stock because of its high valuation has been a mistake. Over the last 10 years, Amazon has always traded on a high P/E ratio. At times, its P/E has been above 200. And its 10-year return? Over 1,600%.
Risks
There are risks to be aware of, of course. One is that Amazon’s a volatile stock. On a regular basis, its share price pulls back 20%, or more. So, this isn’t a stock for those who need capital preservation.
Amazon also faces intense competition. In e-commerce, it faces competition from the likes of eBay, Shopify, and ASOS. In cloud computing, it faces rivals Microsoft, and Alphabet.
Amazon shares: I’d buy today
Overall however, I believe Amazon stock offers an attractive risk/reward proposition right now. With the stock consolidating its gains from early 2020, I think it’s a great time to be buying. I hope to see $4,000 in the not-too-distant future.
