Amazon, the largest internet retailer in the world, is also one of the best-performing large-cap companies in the market. Its stock has gained more than 37% since the start of the year, exceeding that of the S&P 500, which gained just 10%. Growing sales and market share across a wide range of sectors have helped Amazon stock rise and reach the $1,000 level for the first time this year. Investment banks have a positive outlook for the e-commerce giant, forecasting further upside potential.
However, the company missed earnings estimates with a weaker-than-expected Q2 report, catching traders off guard. Amazon earned just 40 cents a share, falling well short of analysts’ forecasts of $1.40. This represented a 78% decline from last year’s results of $1.87 a share.
Is Amazon going back to its old ways? According to Bespoke Investment Group, the earnings miss was Amazon’s biggest since 2001. Still, analysts continue to have faith in CEO Jeff Bezos’ growth strategy for the company. Goldman Sachs analyst Heath Terry defended the company, saying: “We continue to believe that we are in the early stages of the shift of compute to the cloud and the transition of traditional retail online and that the market is underestimating the long-term financial impact of both to Amazon”.
Terry’s price target for the online retailer is at $1.275, about 22% higher than Thursday’s close.
Artificial Intelligence (AI) and Robotics have gained immense popularity in recent years and are now becoming an integral part of corporate investment programmes. Amazon, for example, relies on AI to improve and increase its data processing efficiency, and uses the technology in products like its Amazon Echo speakers. Robotics are being used to improve order delivery methods. In December 2016, the first successful Amazon drone delivery took place in the U.K. Amazon Prime Air is now widely expected to increase the company’s market share and overall sales in the coming years.
So, should you invest in Amazon stock? If its historical performance is anything to go by, in the aftermath of a large earnings miss, Amazon is likely to underperform the market for several months before picking up again. Traders may therefore want to wait a while to identify better entry points.
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