Amazon (AMZN – Free Report) recently made Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Shares of this online retailer have returned +23.2% over the past month compared to the +8.4% change in the Zacks S&P 500 composite. The industry Zacks Internet – Commerce, to which Amazon belongs, has gained 10.7% over this period. Now the key question is: where could the stock be heading in the near term?
While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Amazon is expected to post earnings of $0.32 per share for the current quarter, representing a year-over-year change of +3.2%. Over the past 30 days, the Zacks consensus estimate has changed by -2%.
The current year earnings consensus estimate of $0.72 indicates a year-over-year change of -77.8%. This estimate has changed by -4.2% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $2.31 indicates a change of +221.2% from what Amazon is expected to report a year ago. Over the past month, the estimate has changed by -1.2%.
With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent shift in the consensus estimate, along with three other factors related to earnings estimates, resulted in a Zacks No. 3 (hold) ranking for Amazon.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
In the case of Amazon, the consensus sales estimate of $127.63 billion for the current quarter indicates a year-over-year change of +15.2%. Estimates of $523.77 billion and $605.67 billion for the current and next fiscal year indicate changes of +11.5% and +15.6%, respectively.
Latest reported results and history of surprises
Amazon reported revenue of $121.23 billion in the last quarter, representing a year-over-year change of +7.2%. EPS of $0.10 for the same period versus $0.76 a year ago.
Compared to the Zacks consensus estimate of $119.67 billion, reported revenue is a surprise +1.31%. The surprise EPS was -33.33%.
In the past four quarters, the company has exceeded EPS estimates only once. The company exceeded consensus revenue estimates only once during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Amazon is rated C on this front, indicating that it trades at par with its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Amazon. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.