Amazon (AMZN) stock price targets

Last week, UBS listed Amazon at the top of its list of “oversold tech stocks.” That’s hard to believe when the stock’s already trading at P/E of 578. A closer look at the company’s growth prospects, though, indicates Amazon just might be a very strong buy.

Analysts are very bullish on Amazon’s (AMZN) prospects for growth. A poll of 36 analysts at Yahoo shows that the average earnings estimate for the company stands at $1.92 in 2014. That would be an increase of 225 percent over 2013’s $0.59 per share! What’s even more amazing is the fact that analysts believe Amazon could more than double its earnings again and bring in $4.23 per share in 2015. One analyst actually expects the company to have earnings of $9 a share in 2015!

Overall, analysts expect the company to grow at 49 percent per year over the next 5 years. It’s hard to believe that an online book seller has morphed itself into one of the world’s most formidable online retailers, content providers and internet services companies (thanks to its cloud hosting business).

Analysts are bullish on Amazon’s growth for several reasons:

  • Rapid growth in the company’s cloud-hosting business.
  • A 25 percent price increase for Amazon Prime (from $79 to $99 a year)
  • Strong tablet sales (with Amazon capturing 24 percent of recent tablet orders)
  • Increasing use of Amazon video streaming as the company announced plans to make more content free for all users (a brilliant marketing move that should entice users to buy more premium streaming content) (Amazon has since denied reports by the Wall Street Journal that the company would start offering a free, ad-supported streaming network)

Last week, UBS listed Amazon at the top of its list of “oversold tech stocks” (per 24/7 Wall Street). That’s hard to believe when the stock’s already trading at P/E of 578. Thomson First Call lists a price target of $433.45 for the stock. That would be a 31 percent increase over the current share price of $338. Thomson’s highest price target for the stock (per Yahoo) is $500. The lowest? $330.

3 signs Amazon’s (AMZN) stock is oversold

With the Nasdaq in a near-term downtrend, Amazon’s shares look they’re entering oversold territory. Here’s why…

1) Innovations aren’t priced in. Analysts expect Amazon (AMZN) to announce a “streaming device” at an event in New York City this week (per GainingGreen). Little is known about the device, but I suspect it will compete with Google’s Chromecast and Roku’s new Streaming Stick. That means it will probably be a small HDMI dongle users can plug into their TV’s HDMI ports. From there, users can access free and premium web-based content on their TVs via a remote control or a web page.

2) The experts call it a buy. Last week, UBS put Amazon at the top of its list of the most oversold tech stocks (per 24/7 Wall Street). Others on the list include CA Technologies (CA), Google (GOOG), Infosys (INFY) and Salesforce.com (CRM).

3) Tablet anyone? The Kindle family doesn’t necessarily pop to mind when someone says the word “tablet,” but Amazon’s tablets are actually capturing 24 percent of tablet market share. That’s probably because you just can’t beat Amazon’s prices. A brand new Kindle Fire HDX costs just $199 and has specs that are on par or nearly on par with leading tablets from Apple (AAPL), Microsoft (MSFT) and Samsung.

34% of U.S. consumers said they’re unsure if they’d purchase a tablet in the coming year. Of those, “47% stated high prices to be the reason for their uncertainty,” per TabletPCReview. The average price for a tablet is $326. That makes the Kindle Fire HDX look particularly attractive as its nearly 40 percent cheaper than the average tablet. New and existing Kindle owners are a cash cow for Amazon as they purchase a steady stream of online content from the company in the form of ebooks, movies and TV shows.

A stock’s ‘sex appeal’ plays big role in price

Investors greatly underestimate a stock’s ‘sex appeal’ when they’re trying to value a company. There are a handful of companies that have something special: a great niche at precisely the right point in history, a compelling story or a truly revolutionary idea. Those stocks don’t trade on reason and numbers alone. They trade on beliefs, ‘gut feelings’ and a desire for change in the world.

Last summer, a friend of mine asked me what I thought about investing in Tesla (TSLA). At the time, Tesla had shot up from $30 to north of $100. It was up more than 250 percent in the space of a few months. I told my friend we’d missed the boat. The stock had run too far too fast.

Boy was I wrong. Telsa has more than doubled since then. And that leads me to my thesis for this post: investors greatly underestimate a stock’s ‘sex appeal’ when they’re trying to value a company. There are a handful of companies that have something special: a great niche at precisely the right point in history, a compelling story or a truly revolutionary idea. Those stocks don’t trade on reason and numbers alone. They trade on beliefs, ‘gut feelings’ and a desire for change in the world. Put another way, they trade on hope, hype and hot air.

And yet, we can’t discount the power of a transformative company or CEO to grow into incredibly high expectations for a stock. The example I like to give is Amazon (AMZN). People complain about the valuation of a company like Facebook (FB), which is trading at a P/E of 92. But people aren’t that surprised Amazon’s trading at a P/E of 587!

And yet, Amazon is one of the few tech stocks that’s trading well above it’s dot-com highs from the late 1990s. 15 years ago, Amazon was just an online bookseller. Today, it’s a retail shopping giant, a media powerhouse for online movies, music and books, a hardware manufacturer, a cloud hosting company and a database of product reviews that’s unrivaled. Amazon has lived up to the hype.

Not every company lives up to the hype, of course, but you can’t deny that a few companies do. With that in mind, here’s my stab at a list of the Top 12 stocks with the biggest ‘sex appeal’ right now:

  1. Tesla (TSLA)
  2. Facebook (FB)
  3. Netflix (NFLX)
  4. Amazon (AMZN)
  5. Twitter (TWTR)
  6. Plug Power (PLUG)
  7. Pandora (P)
  8. RF Micro Devices (RFMD)
  9. Under Armour (UA)
  10. NQ Mobile Ads (NQ)
  11. 3D Systems (DDD)
  12. HEMP (HEMP)

I’m going to start blogging more about each of them regularly in the future so stay tuned!