Amazon could be worth $ 5,000 in the long run, 5-star analyst says
Amazon (AMZN) stocks hit an all-time high last week, hitting $ 2,722.35. According to Needham analyst Laura Martin, that milestone will soon be left in the dust as the conquering Amazon heads for $ 3,200.
It turns out that $ 3,200 is only Martin’s short-term goal. Over time, Martin estimates that Amazon stocks could be worth as much as $ 5,000 per share, based on what the 5-star analyst calls “Amazon’s hidden value multiplier.”
There are several of them. One is a TAM (Total Addressable Market) Expansion Multiplier, based on “AMZN’s track record of TAM expansion decisions that lengthen its growth track, generate higher profitability and reduce risk. for shareholders by diversifying sources of income ”.
It comes down to Amazon’s knack for adding “huge” new markets or “investment areas” that couldn’t be seen “3-5 years before investments.”
Another aspect of Martin’s bullish thesis concerns how we view Amazon. To refer to the giant as simply being an e-commerce business, whose focus is online retailing, is wrong. Dig a little deeper and Amazon is, in fact, a service company.
“Over the past 5 years, AMZN’s net service sales have grown from 28% of total AMZN sales to 43%. Net sales of services have an operating margin of 19% versus 3% for sales of AMZN products, ”said Martin.
The analyst values Amazon’s media companies at around $ 500 billion, or 38% of Amazon’s overall value, while AWS, at $ 560 billion, is worth even more.
Add to that the Ecosystem Value Multiplier, which refers to the fact that any business operating under the umbrella of Amazon is worth 1.5 times as much because of the extra revenue generated by “data superiority, the economy. of scale and the “Amazon brand franchises.”
What about that long-term price target of $ 5,000?
Martin explains, “We calculate that today’s share price incorporates 10% asset growth at 10% ROIC. Holding the ROIC constant, our work reveals that if AMZN increases its asset base by at least 20%, its economic profit and share price should double to $ 5,000 / share.
For now, Martin is assigning AMZN a purchase with, as mentioned, a target price of $ 3,200. Investors will pocket a gain of 21% if Martin’s thesis were to materialize in the coming months. (To see Martin’s track record, Click here)
Overall, there aren’t many detractors of Amazon among the analyst community. Amazon’s strong buy consensus score is based on 1 sale and 2 hold vs. 38 purchases. The average price target is more conservative than Martin’s and, at $ 2,746.78, implies upside potential of 4%. (See the analysis of Amazon stocks on TipRanks)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.