According to the news report by Reuters, Amazon.com Inc.’s market value briefly cross the $1 trillion mark, becoming the second publically listed US company after Apple Inc. to achieve that goal.
Amazon.com’s stock price has been soaring the recent years as the company has achieved rapid growth not just in the online retail sector but also in its cloud computing business, Amazon Web Services.
Amazon’s shares went up by as much as $2,050.50 before settling down to closing the day’s trading at $2039.51 per share. So far, for the year, the retail giant’s stocks have grown by a massive 75%.
In fact, if Amazon’s shares continue with their current pace of expansion, it is simply a matter of time before it overtakes Apple’s stock market valuation. Apple Inc. took about 38 years to reach a $1 trillion valuation – which finally happened on August 2 this year. Amazon has made it to that point in 21 years.
Apple’s devices, especially its iPhone lineup have remained popular and the company’s revenues continue to grow. However, Amazon’s growth is set at a blistering pace. The online retail giant has impressed its stakeholders by diversifying into pretty much every corner of the retail industry. This is one company that has been responsible for the revolution of e-commerce and the decline (and almost demise) of the brick-and-mortar retail businesses.
According to the President of Chase Investment Counsel, Peter Tuz, Amazon’s fantastic growth says a lot about the company and how it is increasing its dominance in almost every part of the retail industry. Tuz also stated that right now, Amazon only has captured a tiny share of the global retails sales market, so it has a lot that it can still capture.
The report by CNBC covered another aspect of Amazon’s achievement. While Reuters focused on investors’ glee about how the company’s stocks are rising, CNBC looking at analysts’ concern about the very same stocks.
Analysts are now warning investors against chasing Amazon’s stock at this point in time. Miller Tabak equity strategist, Matt Maley wrote in a note to his clients – just before the company hit its $1 trillion market value – that Amazon’s stocks were hugely overbought and that the company’s stocks were in a rather precarious position.
He said, looking at the data on the relative strength index, Amazon’s stocks were overextended and that a pull-back was now a strong possibility. This is because, Maley stated, the online retailer’s stocks are trading at a massive 136% premium on its 200 day moving average.
Maley did, however, say that he wouldn’t short the stock or even sell it at this stage. All he is doing, he clarified is warning investors not to buy the e-commerce giant’s stocks at this point.
Despite his words of caution, Amazon’s stock has become a sort of a juggernaut. According to data from FactSet, there is not one analyst that is following the company that has given the company a “sell” rating. Amazon’s shares are trading at 156.71 times higher than the company’s earnings, vis-à-vis the market average of companies’ stocks trading at about 21 times higher than their earnings.
According to the CEO of Chantico Global, Gina Sanchez, when valuations of a company are so high, investors need to take the time out to assess whether this is a good time to buy the company’s stocks.
The biggest issue at hand is the fact that Amazon is actually a low-margin stock. And despite low margins, the company’s price to earnings ratio (P-E ratio) is way off the charts.
Analysts, even though they are advising caution while investing in Amazon’s stocks, are optimistic about these very stocks rising even higher thanks to its cloud computing business.