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Shares of Amazon (AMZN -0.79%) were all over the board Wednesday, initially falling as much as 2.9% before climbing back into positive territory. As of 2:45 p.m. ET, the stock was back in the red, down 1.1%.
The broader markets were solidly in rally mode, but conflicting analyst commentary sent the e-commerce giant both up and down, as investors digested the opinions of Wall Street’s best.
UBS (NYSE:UBS) analyst Lloyd Walmsley played the role of Debbie Downer today, lowering Amazon’s price target to $125, down from $165, while maintaining a buy on the shares.
On the plus side, this still represents 47% upside for investors. Walmsley thinks his peers are overestimating the growth potential for Amazon Web Services (AWS), the company’s cloud computing segment. The analyst lowered his growth forecasts for the fourth quarter and the next couple of years, saying that consensus estimates are “meaningfully too high.”
Yet, not everyone shares that view. New Street Research analyst Dan Salmon initiated coverage of Amazon, assigning it a buy rating and a price target of $130, representing potential gains for investors of 53%.
Salmon’s bullishness went further, as he called Amazon his top pick across the U.S. internet sector. The analyst believes Amazon will gain market share in the e-commerce space, benefiting from the “massive” expansion of its logistics and fulfillment operations over the past several years.
While each view is valid, we really don’t know how Amazon will fare over the coming year, largely due to the uncertain economy.
A broad-based economic recovery would no doubt benefit Amazon because consumers would feel confident spending. As the biggest purveyor of digital retail, Amazon is well positioned to reap the rewards.
On the other hand, if the economy spirals into a recession, Amazon will likely suffer as consumers rein in spending.
That said, calling a bottom is hard, but Amazon is selling for a song right now, at less than 2 times sales. This is near the company’s cheapest price-to-sales ratio in about eight years.
Given Amazon’s industry-leading positions in both e-commerce and cloud computing, its growing position in digital advertising, and its bargain-basement price, Amazon stock is a buy.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.
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