Amazon shares have been on an absolute tear over the past couple years.
The stock passed the $800 mark for the first time last week, and is now trading at an all-time high of about $830 per share. Just two years ago, in October 2014, Amazon’s stock was priced at around $315 and only passed $400 in April 2015. Amazon is the fourth largest company in the world today.
Yet Larry McDonald, managing director and head of global macro strategy at ACG Analytics, warns now is not the right time to buy Amazon stock.
“Just because other people are making money in tech doesn’t mean you have to chase. Sit in the boat, wait for fear over the next 6 to 9 months, and you will get a chance to buy Amazon,” McDonald said Tuesday on CNBC’s “Trading Nation.”
McDonald’s logic is simple: Amazon always goes into big investment cycles every few years, and when that happens, its margins get pressured and its stock falls out of favour. McDonald says this happened repeatedly over the past 15 years to Amazon, and it will likely happen again fairly soon.
For example, Amazon spent heavily in building out its distribution centres and cloud infrastructure over the past few years, which have helped expand its third party marketplace and AWS cloud service — two of its fastest-growing businesses that are making a lot of investors bullish about the company.
Amazon has set record-high profits over the past 3 quarters and its cash balance has been extremely strong, but many people believe the investment cycle will kick-in again soon. The area most likely to get a boost is Amazon’s logistics network, as the company is expected to build out its own last-mile delivery network that could eventually replace existing partners, like FedEx and UPS.
“Just look at the charts on Amazon, the expenditures, the long term investments they have to make to create these billions of revenues…that’s the time to seize opportunity to buy the stock,” McDonald said.
Still, many investors believe Amazon has much more upside in the near term. Just over the past week, three financial firms — RBC Capital, Evercore, and JP Morgan — raised Amazon’s price target to $1,000 or more.
Here’s a chart of Amazon’s stock price over its lifetime:
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.