<p>The stock market generally continues to recover from the new coronavirus, but Amazon (NASDAQ: AMZN) has already passed that hurdle. Thanks to social distancing, e-commerce power packages have an even greater advantage compared to traditional “brick and mortar” companies. And there has been a boom in Amazon stocks.
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Not only have stocks bounced back from their coronavirus sales losses. The stock is now trading at around $ 2,400 per share. It is a long time before it was before the pandemic first hit America. Still, can the company’s shares continue to rise?
In most situations, I would give a resounding “no”, but this is Amazon we are talking about. You know, the company you do not want to invest in. So selling stock cards may be out of the question. With basic interest rates encouraging investors to choose stocks over bonds and other financial instruments, the money must go somewhere.
And with many sectors facing major problems from the crisis, companies are only marginally affected by the outbreak where investors want to put their money.
Does buying shares today mean further movements higher? Yes and no. Amazon can be an excellent “flight to quality” game in these uncertain times. But that does not mean it is wise to chase this layer while it is “too hot to touch.” Let’s dive in and see why it might be best to wait for a withdrawal.
Amazon Stock and Stay-at-Home Economy
As InvestorPlace’s Luke Lango put it in a new article, Amazon shares give you exposure to several aspects of our current home economy. In other words, not just consumer-related ones like e-commerce and streaming. I’m talking about their exposure to potential business-to-business coronavirus tailwinds.
Let’s not forget Amazon Web Services (AWS). As our own Louis Navellier wrote on April 14, AWS is a difference maker for Amazon stocks. Not just because it is their main profit center. But also the effects of millions of Americans working from home. A temporarily remote workforce can increase demand for cloud services.
Still, it would not be correct to say that today’s crisis is the only catalyst for the Amazon stock. The home economy is only a temporary case. A major long-term trend, digitalisation, is still in motion. And with the company on the winning side of these changes, expect them to continue to dominate several industries.
Sounds like a good reason to buy, right? It depends on. Everyone knows they’re crushing it right now. And that’s why stocks have risen more than 30% in the past month. With this rapid rise, it may not be best to chase this dynamo while Wall Street‘s enthusiasm for the stock is red hot.
Watch out for results
At first glance, it seems silly to chase Amazon shares at today’s rich valuation. Shares are traded at a price-to-earnings ratio (P / E) of 84.6. Even with an estimated profit growth of approximately 38.7% between 2020 and 2021.
But a book valuation method may not be relevant when talking about Amazon. Simply put, they are not ready to become a cash cow yet. Instead, they continue to invest aggressively to drive organic growth. When it’s time for the company to take its foot off the gas pedal, expect revenue to skyrocket. In other words, there is more to current revenue than meets the eye.
One caveat, though: this argument may justify the long-term case for Amazon. But what about the short term? The company announces the next result on April 30. Currently priced for perfection, stocks may take a dip if earnings and guidance do not live up to expectations. Keep this in mind for the days leading up to revenue.
What is the game? Wait for a withdrawal
Amazon’s upward trajectory remains in motion. Not just because coronavirus is more tailwind than headwind for the company. But also because the company is on the winning side of the digitalisation trend.
Still, although the valuation is less concerned than with other stories, I would not dive in when stocks are parabolic.
So, what’s the game? Wait for a refund before buying Amazon shares. If stocks take a breath, you can find a great starting point for a long-term position.
Thomas Niel, contributor to InvestorPlace, has been writing a stock analysis for web-based publications since 2016. At the time of writing, Thomas Niel had no position in any of the above-mentioned securities.