Should I invest in Amazon shares after Morgan Stanley raised its price target to $4,500?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the outdoors, enjoys… read more.
on Apr 30, 2021
  • Amazon reported better than expected first-quarter results
  • Morgan Stanley raised its target from $4,200 to $4,500
  • Barclays raised its price target from $3,860 to $4,300

Amazon shares have advanced above $3500 after better than expected first-quarter results, and according to the technical analysis, shares of this company could advance even more.

Fundamental analysis: Amazon’s business continues to grow rapidly

Amazon’s business continues to grow rapidly, and the company has become a supply channel for many consumers in the age of the COVID-19 pandemic. Amazon reported first-quarter results this week; total revenue has increased by 43.7% Y/Y to $108.52 billion while the GAAP EPS was $15.79 (beats by $6.18).

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Total revenue has increased above the expectations (+$3.89 billion), and the company expects this trend to continue as we move into the post-pandemic recovery. Analyst firms remain positive on Amazon after the first-quarter report; Wedbush maintained a “buy “rating with a $4,300 price target while Morgan Stanley raised its target from $4,200 to $4,500.

“We believe that many investors expected the company to guide for a sequential decline in revenue and profitability, but Amazon surprised most by guiding to sequential growth on the top line, and to only a modest 10% sequential decline (at the high end of management guidance) for operating profit,” an analyst from Wedbush said.

Barclays raised its price target from $3,860 to $4,300 on expectations that Amazon will continue to provide strong long-term value creation. There are also rumors that Amazon may announce a highly-anticipated stock split, but this is still not sure.

Amazon is in a good position to grow both its retail business and its AWS cloud services segment, and at the current share price, Amazon could be a very good short-term investment. I said short-term investment because with a $1.74 trillion market capitalization, this stock is not undervalued, and the risk/reward ratio is not good enough for “value” investors.

Amazon trades at more than thirty-five times 2020 EBITDA, the book value per share is less than $190, and the company has never declared or paid cash dividends. At the current valuation, much of the upside has already been included in the stock price, and there are better long-term investment opportunities at the moment.

Technical analysis: Bulls remain in control of the price action

Data source: tradingview.com

Amazon shares have been moving in an uptrend since the beginning of April 2020, and the technical picture implies that the price may advance above $3,600 resistance. If the price jumps above $3,600, it would be a signal to trade Amazon shares, and we have the open way to $3,800.

On the other side, if the price falls below $3,200, it would be a strong “sell” signal, and the next target could be around $3,000.

Summary

Analyst firms remain positive on Amazon after the first-quarter report; Wedbush maintained a “buy “rating with a $4,300 price target while Morgan Stanley raised its target from $4,200 to $4,500. Amazon’s valuation is currently near an all-time high, and as long the price is above $3,000, this stock remains in the bull market. Amazon shares are not undervalued; still, if the price jumps above $3,600, the next target could be around $3,800.

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