With a full two months of the quarter still to go, e-commerce giant Amazon (NASDAQ: AMZN) has firmly put itself on the list already of contenders for the top spot. The winner will be crowned at the end of September, but for now, it has a lot going for it that should be of interest to investors.
Having had to watch its shares drop 45% from their all-time highs of last November through the start of this summer, Amazon was proof that very few stocks, no matter how big they are, are inflation proof. But it was around early June that the sellers ran out of steam, and the bears were unable to take shares down any further. Having first held, and then consolidated, just above the $100 level, the more technically minded among us might have had the foresight to see that a trend reversal was on the cards by the middle of July.
This is still very much underway as this goes to print, with Amazon shares up a full 35% from their lows of the summer already. But is there a risk we’re being too optimistic on this one given the months of underperformance that have weighed on shares? Maybe, but we don’t think so. Let’s take a look at some of the reasons behind the argument for getting long.
For starters, investors have a fresh earnings report to dive into and feed off when making any decision regarding adding Amazon to a portfolio in the coming weeks. Just last week the company released their Q2 numbers which easily topped expectations for the top line. Revenue was up more than 7% on the quarter, with AWS growth overshadowing any signs of slippage in other areas. Net sales overall increased 7% to $121.2 billion, pushing comfortably past the analyst consensus by $2.04 billion. For the cash cow that is their cloud business, net sales grew to $19.74 billion in the second quarter of 2022, a rate that marked a solid 33% gain from the prior year’s quarter.
It has to be said that their bottom line contained a bit of noise that won’t go unnoticed, with them technically posting a net loss, though questions remained on whether this was a fair comparison against initial estimates. One of the reasons for this was thought to be a hefty $4 billion charge related to Amazon’s stake in Rivian Automotive (NASDAQ: RIVN). Operating cash flow also fell sharply, marking a 40% decline from the prior year amid the impacts. After notching back-to-back multi-billion dollar losses on Rivian in the past two quarters, the market appears to believe the associated charges are nearly ironed out at this point.
In addition, Amazon CEO Andy Jassy feels the company is navigating inflationary impacts effectively. He told investors that “despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network. We’re also seeing revenue accelerate as we continue to make Prime even better for members”.
Though their forward guidance for Q3 was a little lighter than the consensus, the market clearly had no problem overlooking this as shares jumped 10% after the release. They’ve held onto the gains this week so far too. For those of us thinking about getting involved, will we come to look at this report as the turning point? You have to be thinking that much of the headwinds that took shares down so aggressively in the first half of the year have been baked into the price at this point, and from here there are more likely to be upside rather than downside surprises.
Both Bank of America and William Blair maintained their bullish ratings on the stock after the report, with Justin Post of the former going so far as to even raise his price target up to $160. Even with the recent rally this still suggests there’s an upside to be had in the region of 20%. With both technical and fundamental tailwinds behind shares right now, it’s hard not to see them hitting that in the coming weeks.
Amazon.com is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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