(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Options traders are betting shares of Amazon Inc. (AMZN) will rise to nearly $1,770 by the start of early next year, an increase of about 12% from its current stock price around $1,580. Analysts are even more bullish, with an average price target at nearly $1,875, over 18% higher than its current price. The upbeat outlook comes even with shares up by almost 36% already in 2018.
Shares of Amazon have surged by about 70% over the past year, while the S&P 500 has climbed by only 11%. The company reported better-than-forecast results on April 26. Earnings where nearly double estimates, at $3.27 versus forecasts of $1.22, while revenue was about 2.2% better, at $51.04 billion.
Bullish Options Bets
The long straddle options strategy set to expire on Jan. 18 are suggesting shares of Amazon will rise or fall by nearly 20% from the $1,590 strike price. It would place the stock in a trading range between $1,275 to $1,905 by expiration. All the action is happening at the $1,600 strike price call options, with traders betting heavily the stock will rise by about 12% to roughly $1,765 to break even, based on the cost per contract of roughly $165. There are just over 2,300 open contracts at that strike price, which represents a total dollar value of almost $38 million, a massive wager.
Analysts are also very bullish on the e-commerce giant, with an average price target of $1,875, based on data from Ycharts, the price target has risen by nearly 10% since April 25. Analysts have also upped their earnings estimates for 2018 by almost 45% to $12.38 per share, representing year-over-year growth of nearly 172%. Revenue targets have also been boosted, about 1.6% to $237.26 billion.
Technicals are suggesting shares of Amazon maybe heading lower over the short term to around $1,450, a drop of about 8% from its current price of $1,580. The chart shows a resistance level around $1,620, with a relative strength index that has been trending lower since late January. The next region of technical support comes around $1,450 to $1,490.
Even if Amazon shares did turn lower as the technicals suggest, it would likely only results in a short-term pullback, but the options traders and analysts are looking for a longer-term rise.
Perhaps a short-term pullback may be a welcome excuse for investors looking to get long the stock to finally get into it.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.