AMZN Stock Finally Looks Set to Break Out and Hit New Highs

For years, we heard the bear case for Amazon (NASDAQ:AMZN) stock. It’s overvalued. It doesn’t make any money. It’s overvalued. Oh wait — we said that already. (Well, welcome to 2013 or so). In any case, we’ve heard for years that AMZN stock is about to implode. 

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Until it didn’t. And not only did Amazon not implode, but it’s grown to become a behemoth.

The company now commands a market capitalization of $1.76 trillion, trailing just Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) in total size. 

Amazon has not only survived, but it has thrived through multiple economic crises. The Dot-Com bust, the Great Financial Crisis, the novel coronavirus — you name it. Amazon has not only made it through these times, but has come out stronger than ever.

Secular growth in e-commerce has fueled its growth over the years. But so have its other businesses. Can it continue? 

A Closer Look at AMZN Stock

We already know that e-commerce has allowed Amazon’s online retail business to blossom. But its other businesses are why the company has really been able to flourish. That’s Amazon Web Services (its cloud business), its advertising unit and its entertainment unit. 

Admittedly, its entertainment unit ties in nicely with Amazon Prime, which intermingles with its e-commerce unit. But Prime allows for a nice source of cash flow for the company — like Costco’s (NASDAQ:COST) membership — while also building out a strong online moat.

All of these catalysts have allowed Amazon to balloon in value, and thus, allowed the stock to soar. While frustrating, the stock has been consolidating for almost a year now.

I’ll touch on the technicals in a minute, but this consolidation is one of the best things that could have happened for investors.

It’s allowed the stock to digest its gains from the first half of 2020 and has simultaneously allowed its valuation to come down. It “corrected” without a lot of pain and it gave investors time to accumulate a position. Going forward, Amazon should keep on chugging. 

Consensus expectations call for 27% revenue growth this year and 18% growth in 2023. Never mind that sales grew 38% in 2020. On the earnings front, analysts expect 33% growth this year and roughly 30% growth next year. 

How accurate are those estimates, and more importantly, are they too conservative? 

Over the last four quarters, the magnitude of beats has been staggering. In that stretch analysts expected earnings of $25.81 a share on revenue of $398.4 billion.

What Amazon delivered was wildly above estimates, coming in with earnings of $52.55 a share and revenue of $419.13 billion. 

So collectively, Amazon more than doubled earnings expectations while delivering more than $20 billion in revenue beyond expectations. In these respects, I think the analysts may be too conservative. 

Trading Amazon Stock

I said I would touch on the technicals for AMZN stock and here we are now. Corrections tend to take one of two paths: Either through time or through price. 

In other words, after a strong run, stocks either tend to go through a potentially deep pullback (correcting through price) or they tend to trade sideways for a while and rest (correcting through time).

For example, growth stocks recently corrected through price, while Amazon and Apple corrected through time. 

The latter can be frustrating but it’s the least painful option of the two, so bulls have that going for them. Lately though, AMZN stock has been waking up.

Just look at the way shares exploded higher off the March 2020 lows. Amazon then settled into a trading range between $2,900 and $3,450.

The 50-week moving average has been an excellent support level during that time, gently bouncing AMZN stock higher. 

Now over range resistance, Amazon still has one major hurdle, that being the $3,550 area. Twice now this level has been major resistance. If shares can’t break through it, I would love to see $3,350 resistance turn to support, along with the 10-week moving average. 

A breakout over $3,550 could open the door for a push toward $3,950 to $4,000. 

On the downside, a break back below $3,350 puts the 50-week moving average back in play. Below that and $2,900 to $3,000 range support could be on the table. 

The Bottom Line on Amazon

There is talk of breaking up FAANG, but there’s always been talk about breaking up FAANG. For Amazon specifically, the company has so many moving pieces, that a breakup may even create value — if it happens at all. 

For all intents and purposes, the company remains a growth juggernaut, its valuation has come down significantly over the years and its chart looks much better.

As of now, I’m a bull on AMZN stock, not a bear. 

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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