business

Prime stock – is Amazon stock a worthy investment?

stock market
Written by Nigel Simpkins

You can count on Amazon for Prime next day delivery, but can you rely on an investment in Amazon to deliver a substantial return? Chief Executive Jeff Bezos has announced that he will be stepping down as CEO of the company in the third quarter of 2021. Could this result in an uncertain future for Amazon, making it a risky investment? Keep reading to find out.

Handing over the baton 

It would seem that Bezos isn’t quite done with Amazon yet. He will become Executive Chairman and hand over his leading role to Andy Jassy, the current head of Amazon’s cloud computing business. Instead, Bezos will be putting more effort into his other ventures. He stated in a letter to Amazon staff

“As Exec Chair I will stay engaged in important Amazon initiatives but also have the time and energy I need to focus on the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and my other passions.” 

Amazon is thriving in 2021 

This leadership change coincided with Amazon’s fourth-quarter earnings report that exceeded all expectations. The company doubled their predicted earnings and made history by surpassing the $100 billion mark on revenue. 

The company’s overall sales have been positively impacted by recurrent lockdowns which have forced closure on the majority of retail stores. Amazon’s overall sales have risen by 44% in the last three months of 2020 to $125.6 billion. With all of this considered, the e-commerce giant is heading into 2021 in a prime position for continued growth when it comes to its stocks and shares. 

Technical Analysis of Amazon’s Stock

The stock market is ever-changing so timing is everything. Identifying lower-risk entry points that provide secure potential returns is key. This means reviewing technical analysis such as the Investor’s Business Daily’s Stock Check-uptool, which currently shows that Amazon has an IBD Compositive Rating of 87. Put simply, this means that they are currently performing better than 87% of all stocks. 

It’s important to avoid being blind-sided by the astounding figures that the company is able to flaunt. A Relative Strength Rating, reflects the movement of a stock’s price in the last 52 weeks and compares it to that of other stocks. The ideal stocks to buy into have a rating of 80 plus and Amazon’s is currently sitting at 46.

Another area to consider is the company’s Accumulation Distribution Rating. This rating looks at the price and quantity changes in stock over a 13-week trading period. The ratings span from A-E grade, with A reflecting heavy buying and E heavy selling. Amazon weighs in at a grade C, which is neutral. 

One strategy you could consider is contract for difference (CFD) trading alongside the technical analysis. On a CFD trading platform, you can keep on top of Amazon’s stock value by trading stock on Plus500 for example. With CFD trading, you can speculate on the price movement of the stock, without owning the underlying asset itself. 

Should I buy now or hold off?

Currently, Amazon is not in its prime and is sitting in a consolidation phase. The stock is currently trading for nearly 100 times its earnings. This, combined with a 44% revenue increase in the last quarter means that Amazon has set itself a very high bar to maintain for later quarters in 2021. Realistically, the e-commerce leader will not be able to maintain this sort of pace for the remainder of this financial year. 

Despite Bezos stepping down, long-term investors shouldn’t have much to worry about. His role as Executive Chairman will still afford him a significant influence over the future of the company. 

The company is thriving and has impressive growth prospects. The strong momentum that Amazon demonstrated in 2020 means that Amazon and its stock are undoubtedly a worthy buy for long-term investors.