https://www.barrons.com/articles/amazon-stock-has-dropped-10-and-its-time-to-buy-analyst-says-1541081128
Real Time Analysis
Amazon Stock Has Dropped 10% and It's Time to Buy, Analyst Says
Tae Kim
Nov. 1, 2018 10:05 am ET
Amazon.com stock's big drop after its earnings report is giving investors a compelling entry point, according to Stifel analyst Scott Devitt.
The company's shares (AMZN) are down about 10%, to Wednesday's close of $1,598, over the past week since it reported $56.6 billion in sales for the third quarter, which was $500 million below Street expectations. More troubling to some was its guidance regarding revenue for the December quarter, at $66.5 billion to $72.5 billion. The high end of the range was below the $73.8 billion Wall Street consensus forecast.
But analyst Devitt reiterated his Buy rating for Amazon stock, citing his optimism about the company's rising profits.
"We believe revenue growth is becoming a less relevant metric for Amazon given the outsize growth of the company's cloud and advertising businesses," he wrote on Wednesday. "Amazon's longer-term growth story is intact."
Amazon stock is up 1.8%, to $1,627.05, in early-morning trading on Thursday.
The analyst said that over the past four quarters the company's profit growth was 13 percentage points higher on average than its sales growth. For example, Amazon's gross profits in its third quarter rose 46% year over year versus about 30% for its sales, excluding the effect of exchange rates.
Devitt believes that investors should focus more on the company's profit streams instead of its revenue due to the rising importance of its higher-margin businesses.
"Amazon is the leader in two large and rapidly growing markets (e-commerce and cloud), and strong momentum from [Amazon Web Services] and advertising are elevating the near- to intermediate-term margin trajectory," he wrote.
The analyst reaffirmed his $2,400 price target for Amazon stock.
Despite the recent pullback, Amazon is still one of the best-performing large-cap names in the market this year. Its stock is up 37% year to date, versus the S&P 500's nearly flat return.