Amazon.com is now a $335 billion dollar company. The talk about the first trillion dollar company has now shifted north, away from Apple Inc. to Amazon, the Seattle based online retail provider.
There is also now a $1,000 per share prediction out there on Amazon’s shares. It comes from Robert Luna of SureVest Wealth Management. He thinks it will hit the one-grand market by the end of 2017.
Many consider these types of predictions to be the kiss of death for the stock. Is $1,000 per share an outrageous price target?
The shift away from the mall-based retailers to online retailers continues to accelerate at a meteoric pace. Factset Research just reported that the Internet Retail sub-industry reported the highest earnings growth of all 13 retail sub-industries at 143.1% during this current quarter.
Compared to this same quarter last year, Amazon reported earnings of $1.07 vs -$0.12, while sales grew by 28%.
Coming in a distant second to Internet Retail was the Home Improvement sub industry with 12.2% earnings growth. I currently own both Home Depot (HD) and Lowe’s (LOW) within this sector, but their earnings growth cannot hold a candle to Amazon’s growth.
The results from the Department Stores sub-industry were alarming. It reported the largest year over year decline in earnings of all the retail sub-industries. Are you ready for the number? Earnings were down 47.8% year over year!
Once again, earnings of the Internet Retail sub-industry were up 143.1% quarter over quarter, while earnings at the Department Stores sub-industry were down 47.8%!
Have you seen a chart of Macy’s (M) lately?
That is one, very ugly five-year chart!
Unfortunately, the deep problems at the mall are not just limited to the Macy’s, however. Let’s next have a look at the stock of Nordstrom.
That escalator is headed in the wrong direction!
The stock of Gap Stores used to gap up, not any more…
Now the stock is gapping down in horrendous fashion.
Aeropostale is now in bankruptcy and trading on the bulletin boards at less than one-cent per share. Who is next?
JC Penney has been on “death watch” in the past, but it continues to stay afloat for now.
Meanwhile Sears is back on “death watch.”
The stock of Kohl’s is also headed south in a hurry.
Hey Direxionshares, how about a 3X inverse Mall ETF?
Someone did finally come up with a bull ETF tied to the online retail index.
Bravo! The symbol is IBUY.
I have been putting some shares away since it came public recently.
If you like to explore the short side, I just mentioned some top prospects, but that is not my main subject here. Instead, I want to explore the other side of this trade. Where is all of this mall traffic going? After all, consumers have not suddenly zipped their wallets shut.
We do not need much more of a clue than the fact that earnings at the online retailers increased by 143.1% in this most recent quarter.
One of the biggest holdings at my firm continues to be Amazon.com. I am up almost 90% since my original purchase. Would I still buy the shares today, and how high do I think it can go? Let’s have a look.
Amazon is now almost a $335 billion dollar market cap company. Can it hit a trillion some day? Let’s just focus on the $1,000 target price for now-baby steps!
Data from Best Stocks Now App
Amazon is expected to make $5.34 per share this year. That represents 327% growth vs. last year’s earnings of $1.25! The online retailer is expected to make $9.78 in 2017. That represents an 83% increase over 2016.
Data from Best Stocks Now App
Remember when we wondered if Amazon would ever be profitable? Wonder no more. The 31 analysts that cover the stock have a consensus 5-year earnings growth rate of 55.3% per share going forward.
That is some kind of growth! I remember when Apple (AAPL) had numbers like that. Not anymore. I do not own Apple at the current time. Nor do I have any interest in the shares.
If those 31 analysts are right, Amazon will make $56.89 per share, five years from now. I know that this sounds astonishing, but these are the current expectations on the street. You can look them up for yourself.
Now we just need to figure out an appropriate multiple and we can calculate a five-year target price.
With growth like that, the shares definitely deserve a premium multiple to the market. I would think somewhere in the 20-24X area would be a reasonable assumption. Let’s go right down the middle with a multiple of 22X.
Here is the five year target price that I come up with:
$56.89 X 22 = $1,225
You can now say that I am the guy with a $1,225 target price on the shares of Amazon. I like to do five-year target prices, it helps me keep a longer-term perspective. I remember them telling me back in high school driving class that if I keep my eyes focused further on down the road, I will steer a straighter course.
Of course, a lot can happen between now and then. That is why we watch things like quarterly earnings results, analyst’s upgrades or downgrades and stock charts. But right now, those are the expectations for the company and stocks trade on expectations.
You may think I am crazy with a target price like that. People thought I was crazy back in late 2011 when I wrote that Apple was the cheapest growth stock in the entire market. I thought it could double from where it was at back then. It almost did.
Now I think that Amazon is one of the best growth stocks in the entire market. I also wrote last week about Facebook replacing Apple as a premier growth stock.
Before we leave this subject, let’s take a look at two other big factors with Amazon. I like to combine upside potential and value with relative strength.
How has the performance of the shares been lately? As you can see from the screen shot below, Amazon is one of the best performing stocks in the entire market.
The performance of the shares has clobbered the market over the last one, three, five, and ten years. It gets a proprietary performance grade of A and a momentum grade of A+.
Of the 4,128 stocks, exchange trade funds, and mutual funds in my database, Amazon is currently ranked at number six. It was ranked number eight one year ago.
Would I still buy it today?
The answer is yes. Gunderson Capital Management is long AMZN.