The best deal on Prime Day may be Amazon’s stock

Krystal Hu

If you spent $460 a share for Amazon stock during the company’s first Prime Day three years ago, it has quadrupled to about $1,840 by market close on July 17, the day its fourth Prime Day ended.

Amazon (AMZN) said online shoppers purchased more than 100 million products worldwide during its Prime Day sale this year. While the website’s outage at the start of the sale may have disappointed some customers and sellers, investors shrugged it off. Prime Day has been a win for investors — and some believe it will continue to be.

Starting in 2015, Prime Day has been sending Amazon stock higher by delivering steady drumbeat of results. The first Prime Day was estimated to add $375 million–$400 million to Amazon’s quarterly revenue, boosting growth by around 2% for the quarter. This year, Daniel Ives, head of research at the marketing insights firm GBH Insights, predicts the 36-hour Prime Day event could generate $3.6 billion in sales

Even though the e-commerce giant has been secretive about the exact number of Prime Day sales, the market is buying the story. Amazon’s stock usually rises in anticipation of Prime Day. In 2016, the stock jumped 8% two weeks before Prime Day. Last year, the 30-hour event of deals which was expected to bring in $1 billion in revenue sent the stock back above the $1,000 threshold, which it has been trading well above since. This year, the stock hit another record high of $1,830.99 a share Monday morning, prior to the 3 p.m. ET start of Prime Day.

“It catches investor’s eyes, especially momentum investors. Amazon is a large stock, it’s a momentum stock,” Kim Forrest, senior portfolio manager at Fort Pitt Capital, told Yahoo Finance. “Whenever the momentum is strong, that’s when the momentum investors like to buy. It’s a self-fulfilling prophecy.”

Many believe the rally will continue

Amazon share price has quadrupled since its first Prime Day in 2015.

Even Amazon website’s glitches haven’t dampened market sentiment. Some analysts viewed the stumble as a positive thing.

“After extensive marketing and hype, Amazon has clearly pushed demand for its Prime extravaganza to an all-time high— maybe even more than it anticipated. Fortunately, that means the day will likely be a financial success even with the various system problems,” said Neil Sanders, a managing director at GlobalData Retail.

On Monday, Credit Suisse raised the price target on Amazon to $2,000 a share from $1,950 when the sales event kicked off. Analysts see groceries, furniture and apparel as the largest category opportunities for Amazon, since they require greater service level and could be Amazon’s moat. Amazon is able to invest at a large scale in those nonhomogeneous categories while taking advantage of its existing infrastructure. 

These sectors, along with Amazon’s devices, have been heavily promoted during Prime Day. While there are some concerns that new Prime sign-ups may slow down, Liz Dunn, the CEO of retail analytics firm Pro4ma said Prime Day has evolved from just getting people to sign up for Prime.

“Now it’s driving specific actions,” said Dunn on Yahoo Finance’s Market Mover on Monday. “They want people to engage with Amazon via Alexa. They want people to link their Whole Foods account to their Prime account. They are looking to drive sales of their own devices and their own private label, because obviously, they make more money on those transactions, and it keeps people in the funnel.”

Amazon is burning cash and its stock isn’t cheap

But buying Amazon shares may not be as easy as shopping on Amazon — now trading at around $1,800 a share the stock is not a bargain. High valuation has prompted investors to look elsewhere. Gene Munster, an analyst from Loup Ventures believes this year’s Prime Day results will be impressive, but he cautions that investors’ money is better spent on other stocks like Apple (AAPL) or Tesla (TSLA).

“Amazon is a consensus long, that means there are few ‘new investors’ to win over,” Munster told Yahoo Finance.

The Seattle-based behemoth has been spending big, from building logistic systems to brick-and-mortar footprints. And shareholders have been extremely patient with the move, seeing it as a necessary step to dominate the market.

Moody’s lead retail analyst Charlie O’Shea estimates Amazon has invested $10 billion to build its shipping system. “It has been absorbing the cost for several years since it ramped up Prime, I don’t know any retailer with a shareholder base who will not penalize it for doing that. Our ratings are betting that most of the investments will pan out,” O’Shea told Yahoo Finance.

Others like Kim Forres of Fort Pitt Capital, who considers herself a value investor, chooses to stay away from Amazon even though it’s been a major contributor to S&P 500 gains this year. “We like companies that are more accountable,” Forres said. “The analysts who cover it have given the company a pass. They don’t need to disclose what I would consider pretty important metrics.” 

Krystal Hu covers technology and economy for Yahoo Finance. What do you want to read about Amazon? Tell her via or follow her on Twitter.

Illo by: David Foster

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