Why Is The Street So Optimistic About Amazon?

Amazon.com, Inc. AMZN stock is up almost 40 percent year-to-date and the Street is getting even more optimistic about the company. R.J. Hottovy, Morningstar analyst, was on CNBC Friday to explain the reason for this optimism.

Getting Back To Basics

“The company has gotten back to its core business lines more than anything else, e-commerce and AWS (Amazon Web Services),” Hottovy said. “We haven’t heard much about the Fire phone that was a disaster last year, really [focused] on what makes things want to go to this business. I think, in particular I think they have done a great job making the prime membership more attractive for not only customers, but also sellers, keeping the marketplace vibrant.”

He continued, “We also got our first glimpse of what AWS, the cloud computing and software services of the business looks like, very profitable business that’s got some very intriguing long term valuation and implication as well. So, I think that’s what the company is doing right, just getting back to basics.”

Fairly Valued

Hottovy was asked if he will be a buy Amazon at this point. He replied, “We think that the shares are effectively fairly valued right now. We have a $440 fair value estimate. I think, [the best business has a] tone of momentum behind it at this point, but thing to remember is the second and third quarter is typically when you see the heaviest investments in the business ahead of the holiday season.”

“So, sometimes as we look to the next couple of quarters, you start to see some of those margin concerns start to creep back in the marketplace. Right now fairly valued, be a holder of it, probably not be adding a lot of new money to it at this point,” Hottovy concluded.