Amazon stock performance has not been great over the past year. Shares of this internet giant inched up about 3.7% in one year, underperforming its FAANG peers.
Moderation in growth rate, a difficult year-over-year comparison, and supply-chain headwinds weighed on Amazon (NASDAQ:AMZN) stock. Furthermore, investments in growth initiatives (expansion of fulfillment capacity), cost inflation, and a tight labor market took a toll on its margins.
Amazon’s net sales growth rate moderated from 44% in Q1 to 15% in Q3. Meanwhile, Amazon expects its Q4 financials to take a hit from incremental costs in its consumer business, due to the labor supply shortages, supply-chain issues, and higher wage costs.
Given the near-term headwinds, hedge funds have been offloading Amazon stock. TipRanks’ Hedge Fund Trading Activity tool shows that hedge funds have sold 576K Amazon shares over the past three months.
What’s Next for Amazon
While Amazon could witness moderating sales and margin trends in the sort-term, Oliver Hu of Guggenheim expects Amazon’s “market share gains to reaccelerate by mid-FY22.” Further, Hu expects the pressure on Amazon’s margins to ease as it absorbs higher costs from last year.
Moreover, acceleration in higher-margin business (AWS and advertising) and expanded fulfillment capacity would likely support its profitability. Hu has a bullish outlook on Amazon stock.
Similarly to Hu, Bank of America Securities Justin Post also maintains a positive view about Amazon’s prospects. Post expects Amazon’s margins to benefit from its investments in growth initiatives. The analyst sees strong growth for Amazon and expects the near-term headwinds to ease in 2022.
It’s worth noting that Amazon’s fulfillment capacity has nearly doubled over the past two years. Moreover, its AWS (Amazon Web Services) revenue is witnessing a reacceleration in growth rate (32%, 37%, and 39% in Q1, Q2, and Q3, respectively), which is encouraging.
Wall Street’s Take
As Amazon’s headwinds are expected to dissipate soon, analysts have a bullish view on AMZN stock. Amazon stock sports a Strong Buy consensus rating based on 30 unanimous Buy recommendations.
Furthermore, Amazon’s stock forecast on TipRanks shows healthy upside potential. The average Amazon price target of $4,150.83 implies 28% upside potential to current levels.
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