Stock Market News – Amazon hits record high above $1,500; market’s valuation equivalent to more than 2.5 Walmarts

Andreas Georgiou, XM Investment Research Desk

Retail giant Amazon reached a fresh all-time high during Wednesday’s trading, exceeding $1,500. By the end of the session it lost some ground amid a broader market retreat, though it still finished the day higher, with its market capitalization settling at $717.9 billion. For a bit of perspective, retailer Walmart, whose stock price recorded losses after delivering an earnings miss earlier in the week, has a market cap of $271.1bn. Amazon is thus valued as 2.6 Walmarts at the moment.

Amazon’s forward price-to-earnings ratio is at 156.8. This is more than nine times larger than the average of its peer group of 16.8. A high P/E is a testament of the market’s belief in the company’s growth prospects, but could also be an indication of an overvalued stock. Wall Street analysts seem to be siding with the former, as the median target price assigned by them is $1,700, valuing the firm at about $823bn.

Earlier in February, the Seattle-based company delivered Q4 2017 financial results that included a positive earnings surprise in excess of 100%, while top-line growth was also impressive. The corporation is reaping the benefits from robust expansion in the retail business as its business model renders it difficult for rival firms to compete with it on price, choice and convenience. In fact, it could be argued that the demise of Toys “R” US – the company filed for Chapter 11 bankruptcy protection in September – was due to the fact that it attempted to compete with Amazon on the three previously mentioned fronts. Amazon’s next earnings report is due on April 25.

Continued growth in the e-commerce market, and given the firm maintains or even expands its market share by maintaining its aggressiveness and proceeding to, among others, strategic acquisitions, makes it likely that it will continue to grow “abnormally” over the coming years. It is also perhaps encouraging for the company that it deftly manages complexity from online and an ever-increasing offline presence. The acquisition of supermarket chain Whole Foods Market was yet another step showing Amazon’s commitment to aggressively expand both online and offline, reshaping the retail landscape along the way. Lastly, the corporation’s investments in the cloud cannot be left without mention; Amazon Web Services have grown by more than 40% y/y in each of the preceding five quarters, while delivering impressive margins that far exceed those of the traditional retail business.

Among potential threats for the company are traditional brick-and-mortar businesses deciding to play the game of e-commerce. WalMart is one such company that has entered the space. However, one can only wonder whether most such companies stand a chance against Amazon, given the company’s strong position reflected by the high satisfaction among its customers.

The Jeff Bezos-led company’s stock price closed Wednesday’s session at $1,482.92. Some resistance could take place around the $1,500 handle, this being a potential psychological level as well as the area around it encapsulating the stock’s record high of $1,503.49. Positive momentum seems to be strong though at the moment for the company and sooner or later it is likely to power through the aforementioned area, with $1,600 coming next into view. The RSI, which is rising again to further distance itself from the 50 neutral-perceived level, is supporting the view for a bullish bias. On the downside, the range around $1,450 was congested on the hourly chart and might provide some support in the event of price declines.

Amazon is an S&P 500 and Nasdaq 100 component stock. Year-to-date and prior to Thursday’s US market open, the S&P and Nasdaq 100 are up by 1.0% and 5.7% respectively, with Amazon stock’s equivalent performance standing at 26.8%.