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Is Amazon Stock Worth $5,000?

By Joe Tenebruso – Jun 17, 2020 at 12:55PM

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One analyst says the e-commerce titan's media business alone could be worth $500 billion.

Investors are still undervaluing Amazon.com's (AMZN -3.01%) shares. So says Needham analyst Laura Martin.

On Tuesday, Martin began coverage of the online retail and cloud computing juggernaut. She placed a buy rating and $3,200 target price on its shares -- and said they could be worth as much as $5,000 over the longer term. Martin's near- and long-term targets represent potential gains for investors of roughly 20% and 90%, based on Amazon's current share price of $2,642.

A digital bull is climbing an upwardly sloping stock chart.

Amazon is poised to deliver strong returns to shareholders, according to Needham analyst Laura Martin. Image source: Getty Images.

Martin values Amazon's media businesses -- including its Prime Video and Prime Music streaming services, as well as its video game streaming platform Twitch -- at approximately $500 billion. That makes them nearly as valuable as Amazon Web Services, the company's industry-leading and rapidly expanding cloud infrastructure business. 

Martin argues that due to their higher profit margins, Amazon's digital media operations should command higher valuation multiples -- such as price-to-earnings and price-to-cash flow -- than its lower-margin retail operations.

Additionally, Martin says these services help to strengthen Amazon's data collection capabilities, and, by extension, its ability to create successful new products. 

Is Amazon stock worth $5,000? 

Not today, but it certainly could be within the next few years. Amazon continues to grow sales and operating profits at an impressive clip, driven in part by a coronavirus-fueled acceleration in the growth of e-commerce and cloud computing.

Moreover, Martin makes some excellent points regarding the often-overlooked value of Amazon's quickly expanding media empire -- and its ability to reinforce the other aspects of its already booming business. If her theory is correct and investors become more willing to pay a higher multiple on Amazon's profits and cash flows as its margins improve, Amazon's stock price could easily hit $5,000 inside of five years -- and perhaps much sooner.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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