After rallying over 40% for the year, shares of e-Commerce behemoth Amazon Inc. (NASDAQ:AMZN) plummeted by over 10% following the release of the company’s second quarter earnings report. Previously, the Amazon stock had reached an all-time high of $1083, leaving company CEO Jeff Bezos the richest man in the world for all but a few hours. Yet a disappointing earnings report hit the stock valuation hard, as the Seattle-based company missed heavily with regards to earnings, despite delivering a beat on revenues. As per the second quarter report, Amazon’s earnings tanked 78% year-over-year and guidance was hardly encouraging thereafter. However, as of the last few weeks, Amazon has been making a strong comeback, evidenced by the fact that the company is once again trading near the psychologically important $1000 mark, having fallen as low as $945 per share back in August.
So why the Surge?
A likely explanation for the recent surge in the stock can be indebted to the new business developments that Amazon is currently implementing. A recent report from Bloomberg indicates that Amazon is showing healthy progress after its acquisition of Whole Foods. That is, web sales of Whole Foods branded products totalled about $500,000 in the first week, according to One Click Retail’s estimate. In the past, Amazon has struggled with online grocery services, seemingly due to the fact that shoppers have not been confident in the validity of the products listed on the site. However, given the trust that the Whole Foods’ brand already enjoys, Amazon should find it much easier to grow its online grocery business in the future.
What’s more, Amazon is continuing to expand its footprint in emerging markets, particularly so in Mexico. Rumour has it that in order to spearhead its effort in South America, the company is preparing to open a 1 million square-foot warehouse near Mexico City. The facility is likely to triple Amazon’s distribution space in Mexico and help bolster company prospects in a country home to 120 million potential new customers. As it currently stands, online shopping comprises just 3% of all retail sales in Mexico, leaving a huge potential for growth therein. Moreover, results of expansion are already beginning to show, in that Amazon posted $253 million in sales in Mexico last year, which is more than double last years sales in the region.
Will the Stock Continue it’s Upstreak?
Amazon’s price has climbed more than 5% over the last two weeks and is still gaining momentum. The stock made a bullish crossover above the 50-day moving average of $987.95 on September 13th, closing at $999.60. This bullish crossover indicates that the rally in Amazon stock is still strong and the stock is likely to continue upwards in the future.
Amazon climbs above it’s 50-day moving average. Source: NASDAQ
As such, I would estimate that the Amazon stock is all set to break out above the $1000 mark in the coming trading sessions. Analysts are also remaining bullish on the e-Commerce giant, given that 40 of the 46 tracking the stock maintain a “buy” recommendation. What’s more, the median price target for Amazon stock is $1,150, indicating 15% upside. So, as the stock seems to be gearing to climb even higher in the not-so-distant future, prospective investors may want to move quickly.
(Kathleen Craig, Research)
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