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Goldman Says Investors Should Still Be Ordering Amazon

Goldman Sachs is still delivering the message that it’s time to buy Amazon.

Despite the fact that the stock of the streaming movie service has risen more than seven times since the low it set after the financial crisis to just under $600, Goldman says Amazon’s shares are still cheap. Amazon (AMZN) was one of the biggest names on a list Goldman put out recently put out of stocks they think are the best investments right now.

“Perhaps it should be no surprise that after 80 months of economic growth things are looking a little stretched,” said Jessica Binder Graham, research analyst at Goldman (GS), who put together the list.

But it’s not just Binder who is pushing Amazon’s shares at Goldman. The Wall Street firm has Amazon on its so-called conviction list, which lists the stocks its analysts believe will be the top performer. Recently that call hasn’t looked so good. Amazon’s shares are down a little over 12% in 2016.

Graham sought to find the best stocks right now, and looked at stocks’ forward multiples between 2007 and today to determine which ones were trading below their cyclical average. Graham found that most stocks she looked at have been trading above their “mid-cycle” ratios—meaning where they usually trade in the middle of an economic recovery or bull market—since 2013.

On this measure, though, Amazon looks cheap. Its shares are currently 17.5 times the company’s earnings before interest, tax, depreciation, and amortization (EBITDA), versus an average of nearly 24 times, or about a quarter below its average price. Of the 14 stocks on Graham’s list, Amazon had the fourth lowest discount on a percentage basis. Ciena (CIEN), Juniper Networks (JNPR), and Hertz (HTZ) all had lower multiples based on a percentage of their historical average.

(For more on Amazon: The Evolution of Jeff Bezos)

Graham believes that Amazon could continue to rise in the face of economic headwinds.

“Almost 70% of the market is currently over-earning…and consensus estimates suggest over 35% of them will hit peak margins in 2016,” she said. Amazon, however, has strong revenue growth and a low multiple, Graham says, allowing it to keep pace with any rises to cost.

RBC Capital Markets analyst Mark Mahaney has a price target of $715 a share on the stock. Even if economic pressures increase costs over all, he says Amazon’s margins will improve as its scale grows, and it is working on better cost structures with its vendors.

He also sees Amazon gaining more market share in an area that is growing. According to Mahaney, online retail should grow 1% per year from the present 11% of the market it currently holds. Revenue last quarter grew 26%, not including fluctuations in foreign exchange rates.