A few months ago, I wrote an article suggesting that Amazon.com, Inc. (NASDAQ:AMZN) was heading toward a $1,300 price target faster than anyone imagined. Today, as I ponder the current $726.00 share price for AMZN stock, I am amazed.
When I predicted the $1,300 valuation, I was picturing in a period of two years—perhaps one—of steady rises, imagining the price to be in the mid-$550.00 at this point—maybe $575.00, to be generous. Yet barely four months after that ludicrous proclamation, AMZN stock has gained more than 50%.
The Oxford English Dictionary people, who like to think of such things, should coin a new word: “amazonement,” meaning the expression that arises on one’s face upon following the course of Amazon stock.
Is there anything that can stop this company? Maybe Elon Musk will find something in his space travels on the planet Krypton, but nothing here on Earth is going to do it.
Indeed, those who predicted Amazon stock’s $1,300 share price, like MKM Partners analyst Rob Anderson, may have to re-evaluate their calculations; they are now too low. Perhaps, they went too “bearish” because MKM Partners was basing its price target on such realistic aspects as cloud computing and continuous e-commerce dominance. The analysis could not have foreseen the various ways in which that dominance would unfold. (Source: “Amazon’s stock can hit $1,300 in 4 years—MKM analyst,” MarketWatch, December 15, 2015.)
The Next Big Thing for AMZN Stock
The latest favorable side-route that will accelerate Amazon stock’s value passes by way of India.
Now, India, as many of you know, is the world’s second most populous country with more than one billion people and the fastest-growing consumer class in the world. Let that sink in for a moment. Indeed, it is a potential market in the hundreds of millions. Amazon’s boss, Jeff Bezos, himself a space-age visionary, has promised to invest $3.0 billion in India to boost growth of its e-commerce there. That may sound like a lot, but it’s merely lunch—make that breakfast money for Amazon considering the size of the potential return.
The perceptive businessman that he is, Bezos did not have to waste the money for business class air travel. He sealed the deal on the sidelines of a visit to the U.S. by Indian Prime Minister Narendra Modi. Bezos rightly addressed the audience, noting that he saw “huge potential” in India. Indeed, Amazon can use India as a platform to conquer the wider Asian market, since it has so far only gained a small foothold in China’s online market, where it operates through Alibaba’s portal. (Source: “Amazon.com (AMZN) Stock Up on $3 Billion India Investment,” The Street, June 8, 2016.)
The fresh $3.0-billion injection, announced Tuesday, adds to the $2.0 billion that Amazon invested in India in 2014, taking advantage of Prime Minister Modi’s business-friendly campaign—and related incentives—to attract foreign investors.
Amazon has made a solid breakthrough by approaching the highly competitive online business market in India. It does face competition from local rivals like Snapdeal and Flipkart, which have attracted billions of dollars in foreign investment themselves.
But online business groups in India, including Amazon, are generally present in a marketplace format, serving as a platform to bring buyers and sellers together. They don’t actually sell products directly.
In March, the government relaxed rules for foreign investment in these platforms online, which can now be 100%-owned by foreigners. So, that is a first direct advantage to Amazon. More importantly, Bezos said that Amazon would create a “Web Services Cloud Region” in India, as well as a software engineering and development center in Hyderabad. This will create thousands of jobs for locals.
This is an important aspect, as the company is set to dominate the Indian online marketplace, displacing many local competitors with its research and development potential. Similarly, Amazon can also sell its technology to help startups in India, having already established itself as one of the fastest-growing digital innovation centers in the world.
The Bottom Line on AMZN Stock
Apart from India, where Amazon needs to have a strong presence, given its sheer potential, Amazon also has much more room to grow in Europe and Latin America. The expansion potential is perhaps greater than the market it already controls. That alone suggests that even at its current price, Amazon stock is priced too low.
Bottom line: Amazon.com, Inc. stock is cheap at $726.00 per share.