Despite being one of the world's largest, most steadily growing businesses, Amazon's (AMZN -1.65%) stock fell by around 40% in the last 12 months, leaving investors looking for alternatives to buy for growth. Nonetheless, Wall Street analysts predict that Amazon's share price could rise by around 40.5% on average in the next 12 months. So, at least a few people believe that the company's shares are still worth buying.
At the same time, analysts anticipate that lesser-known growth stocks like InMode (INMD -1.96%) and Green Thumb Industries (GTBIF -5.60%) will see their shares climb by 63% and 152%, respectively, which would mean they'd blow Amazon out of the water.
But are these lofty estimates to be believed, and could those two ultimately beat Amazon this year, or is it unlikely? Let's investigate in more detail to find out.
1. InMode's growth is ramping up faster than Amazon's
As a medical cosmetic device company, there are a few drivers that could push InMode to outperform Amazon in the near term.
First, management is signaling that its new Empower RF workstation for cosmetic women's wellness therapies will continue to be a hot seller. That's part of the reason why its top line grew by 27% in 2022 to reach $454.3 million.
More importantly, the company is also planning to launch another workstation for ophthalmology in the first half of the year, not to mention launching the second generation of its facial treatments hardware in the second half. It'll likely see success in marketing those products to the clinicians who are already customers, not to mention new ones secured by its large and growing sales force.
But Amazon is sure to be launching plenty of new products and services too, and it's a much larger and far more diversified company. The catch is that Amazon maintains a narrow or slightly negative profit margin to prioritize continued growth, as it can afford to undercut competitors in a wide variety of different markets with the eventual goal of capturing those markets.
That is likely a good strategy for the long-term health of the business, but it also means that it's easy for it to get lapped by smaller, more rapidly growing companies in the short term. Whereas InMode's trailing-12-month (TTM) normalized diluted earnings per share (EPS) grew by 149.3% over the last three years to top $1.82, Amazon's shrunk by 20.4% in the same period, marking a loss of $0.26 per share.
Similarly, profit (net income) margins have been substantially higher for InMode (see below chart). That said, InMode's shares are trading far cheaply than Amazon's, giving the former a really good chance of outperforming the e-commerce behemoth from current price levels.
INMD Net Income (TTM) data by YCharts.
Given that InMode doesn't plan to change its strategy of profitable growth anytime soon, it's highly likely that its EPS and also its top line will continue to expand faster than Amazon's. And while it's true that it's significantly riskier than Amazon because it only competes in one industry, InMode's stock has a good chance of outperforming the internet retailer's, though in the current market conditions it probably won't spike by as much as Wall Street expects.
2. Green Thumb may continue to be a victim of forces beyond its control
Whereas InMode has a credible path to topping Amazon, regrettably the cannabis company Green Thumb Industries does not, even though analysts have even higher hopes for it.
The biggest issue is that it simply isn't growing as fast as Amazon is, nor is it expected to this year. Its top line was $1 billion in 2022, and for 2023, analysts are predicting growth of around 4.1%, or $1.06 billion in total, which, in proportion, is less than half the 8.4% that Amazon's revenue is predicted to increase.
The most likely reason for that is the sorry state of the cannabis market in the U.S. It's currently swamped with excess marijuana, which companies are having a hard time selling at their preferred price points.
Simply put, it isn't expanding nearly fast enough or nearly profitably enough for the market to be likely to bid up its shares in the current environment. There isn't much of anything that Green Thumb can do about the glut of marijuana other than wait for conditions to improve and avoid contributing to the problem. And while the business is narrowly profitable, with a profit margin of 1.1%, that is likely to be tenuous, as maintaining profitability in the face of falling cannabis prices is quite difficult.
The market knows all of this and is pricing the stock accordingly. Amazon faces no such headwinds, and its profitability or lack thereof is a choice rather than something that can change depending on which way the wind blows in a commodity market like cannabis.
In a nutshell, Amazon is both more diversified (and safer), and growing its top and bottom lines faster than Green Thumb's, so there's not much reason to expect Green Thumb's stock to do better in the foreseeable future.
