Is Amazon stock too expensive? Maybe not, this fund manager says

Is Amazon stock expensive?

With this year’s Prime Days now behind it, investors can concentrate on the bigger questions concerning Amazon (Amazon News, Stock Quote, Chart NASDAQ:AMZN), namely, is the stock overvalued or does the e-commerce giant merit those inflated multiples? A bit of both, says Scotia Wealth’s Greg Newman.

Is Amazon stock expensive? Maybe, maybe not…

“If you look at a 2019 earnings estimate, it’s very, very expensive,” said Newman, senior wealth advisor and director of wealth management at Scotia Wealth, to BNN Bloomberg on Thursday. “But the growth rate is so high that if you’re looking at it on a 2021 basis, it’s a reasonable valuation.”

“But you have to assume that they’re going to keep growing at that 30 to 40 per cent number, something big like that. It is still a very compelling story,” he said.

Ahead of Amazon’s second quarter results due after market close on July 25, the company posted a significant profit beat in its Q1 delivered on April 25, even as revenue growth continues to slow. Amazon reported revenue of $59.7 billion, a 16.9-per-cent growth rate, and earnings per share of $7.09 per share. The company’s cloud service continued to power forward, growing its top line by 41 per cent, while its advertising business grew by 34 per cent, a drop off from more than 60 per cent growth over the past five quarters. The consensus estimates for the quarter were for revenues of $59.7 billion and EPS of $4.72 per share.

For Amazon’s upcoming Q2, analysts are expecting year-over-year revenue growth of 18 per cent and earnings per share growth of nine per cent.

Disclosure: Cantech’s Nick Waddell owns shares of Amazon.