After an epic 2020 for Amazon (AMZN 4.44%) stock, when shares surged 76% higher, the stock took a breather in 2021. Year to date, shares are up less than 5%. This is far below the S&P 500's 27% gain over this same timeframe. One analyst, however, thinks that the stock's momentum can pick back up in 2022.
Monness Crespi Hardt analyst Brian White recently reiterated a buy rating and a $4,500 12-month price target on Amazon stock, representing more than 30% upside for the growth stock. Is now a good time to buy Amazon shares?
The bull case
Interestingly, much of White's optimistic view for Amazon stock is based on the company's cloud computing business -- not its closely watched e-commerce business. As the economy reopens, the company will be "one of the biggest beneficiaries of accelerated digital transformation," said White in a note to investors.
Capturing the momentum in Amazon Web Services, the important cloud computing segment saw revenue increase 39% year over year in third-quarter 2021. This was the segment's third consecutive quarter of accelerating year-over-year growth rates. The business unit grew 28% in the fourth quarter of 2020 and then 32% and 37% in the first and second quarters of 2021, respectively.
Also key to White's thesis is that Amazon's profitability is extremely suppressed compared to its long-term potential. This is because Amazon is always investing aggressively in its business. Consider that the size of Amazon's fulfillment network had nearly doubled by the end of its third quarter of 2021 compared to what it was before the pandemic began.
With aggressive reinvestment in virtually all areas of its business, Amazon's profitability valuation metrics like price-to-earnings all appear inflated. But White says investors shouldn't let these metrics fool them. These are still early days for the company's profitability.
Is Amazon stock a buy now?
While investors should do their own due diligence before they buy shares in any stock, White has some great points about Amazon stock's attractiveness. Sure, shares may trade at 67 times earnings. But expectations for strong revenue growth and margin expansion over the next five years have analysts betting on substantial earnings-per-share growth over this period. On average, analysts currently expect Amazon's earnings per share to grow at an average annualized rate of 36% over the next five years.
Overall, Amazon's impressive momentum in cloud computing and the company's potential for significant earnings growth make the stock a good buy today. Investors can take advantage of the stock's lagging performance and get in on a great company's shares at a good price.