Please ensure Javascript is enabled for purposes of website accessibility

Why Amazon Stock Just Popped 5%

By Rich Smith – Oct 12, 2020 at 2:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

On a day when one of its transport partners got an upgrade, investors were more enthusiastic about the e-commerce giant.

What happened

Amazon (AMZN -0.77%) the business dominates the world of online retail, but with its share price nearly twice what it was a year ago, Amazon the stock may look pretty pricey to some investors. Perhaps for that reason, on Monday morning, analysts at Loop Capital recommended that investors seeking a "back door play" on Amazon's success take a look at Amazon Air partner Air Transport Services Group (ATSG 0.57%).

But were investors convinced by Loop's argument? It actually looks like they weren't -- because while Air Transport shares were up by only 2.7% at just after 2 p.m. EDT on Monday's upgrade, Amazon shares were up by 6.1%.  

Drone delivering a package

Image source: Getty Images.

So what

According to Loop, Air Transport stock is a seasonally good buy as we approach the holiday shopping -- and shipping -- season. Its business is also only going to grow as Amazon increases the number of Boeing 767s it leases from the company over time. And of course, with a P/E ratio of less than 27, Air Transport has far less of a premium priced into its stock than Amazon, which trades at more than 122 times earnings.

Regardless, investors seem to be looking at Amazon's projected 31% annualized earnings growth rate, comparing it to Air Transport Group's 15% projected rate, and concluding that Amazon stock remains the better deal.

Now what

Is that the right call? From a valuation perspective, I have to say that Air Transport Group does look like the better bargain, even if its growth rate does turn out to be just half of Amazon's. On the other hand, though, the only way I see for Air Transport to grow is by flying more planes carrying more stuff, whereas Amazon has multiple potential sources of growth -- selling more stuff, hosting more data on AWS, selling more Fire tablets, and on and on and on.

Given the greater growth potential Amazon possesses, I can't really fault investors for preferring it over Air Transport Group -- even if it was Air Transport Group stock that got the upgrade.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Smith 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon Stock Quote
Amazon
AMZN
$93.41 (-0.77%) $0.72
Air Transport Services Group Stock Quote
Air Transport Services Group
ATSG
$28.41 (0.57%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.