How Amazon.com, Inc. (AMZN) Will Reach Its $400 Price Target?

Piper Jaffray’s overweight rating of Amazon.com, Inc. (NASDAQ:AMZN), and a price target of $400, for a stock that was trading at $297 at the closing bell might have caught many investors in disbelief. In an interview on CNBC, Piper Jaffray’s top analyst, Gene Munster, explained how this call which mostly revolves around the ever slight improvement of margins will lead to the stock getting back into the game.

Amazon.com, Inc. (NASDAQ:AMZN) has lost the interest of investors owing to things looking bleak for the company in terms of profitability, but Munster explained that things look darkest before dawn, and to this end he cited the examples of Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL) when the stocks of these companies had fallen out of the investors’ favour, with credible reasons to be worried about, at least in the short term.

Munster explained that just as investors are failing to look at the long term picture in the case of Amazon.com, Inc. (NASDAQ:AMZN) right now and low margins seem to scare them, they fell into the same trap with the other tech companies mentioned before by restricting their investment horizon to short term.

According to Piper Jaffray, Amazon.com, Inc. (NASDAQ:AMZN) is set to fractionally improve its margins from 1.3 percent to 2.7 percent during the course of next year. However, this is expected to lead to a substantial increase in 2016 of nearly 6 percent.

“[…] For these stories to change it is just small fractional changes, and we have been in the period where margins have been going down for the past year and a half at historically low levels. So, when I talked to investors before this call and just tried to get some feedback about Amazon.com, Inc. (NASDAQ:AMZN), I think that there is so much skepticism about where margins are going that I think that small improvement is going to have a large impact on the multiple,” explained Munster.

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