Amazon.com Inc. (AMZN): Forget $380 – What About $700?

Amazon.com Inc. (AMZN) is on the loose today, outperforming a strong NASDAQ. The online retail giant's shares are ahead by almost $20 (more than 6%) as we type. The A-to-Z retailers can thank an upgrade from UBS for today's charge.

Analyst Eric J. Sheridan sees the stock as a "Buy" now, up from yesterday's "Neutral" rating. Sheridan says the NASDAQ 100 member is on its way to $385; potential upside of 14.9% as we hit this keystroke.

According to the analysts, "We are upgrading shares of Amazon from Neutral to Buy & taking our PT to $385 (from $305) on the back of a bullish secular backdrop for Amazon's position in multichannel commerce & specific items that we think could propel both higher operating results and stock outperformance over the coming 12-18 months. Specific drivers for our upgrade: a) our expectations for a reacceleration of revenue growth and paid unit growth in Q4 and beyond (indicators being strong seasonal hiring trends, video game/console sales, easing paid unit comparisons, AWS); b) the globalization of its Kindle ecosystem; & c) its under-appreciated Advertising business."

Amazon.com is a difficult company to assign a valuation to as the company tends to lose money. As a matter of fact, Wall Street believes AMZN will lose nine cents for the current quarter.

For all of 2013, Amazon is forecasted to make a profit of $0.86. Sine Sheridan is concerned with the next "12-18 months," we'll focus our look at the possibility of $380 on 2014's numbers.

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Next year, the consensus estimate is $2.88 per share, which is a projected increase of 241% from this year's guesstimate. In order to price out at $380, Amamzon.com requires a P/E of 131.94 on 2014's EPS. It's not all that crazy when you consider the bottom line is slated for 241%. In fact, we rather like that sort of EPS growth to P/E discount.

Revenue ! for 2014 is projected to grow 21.50% to $90.39 billion. In the past five-years, investors have paid an average price-to-sales (P/S) ratio of 2.03 for the retailer's shares. They would have 1.9 times sales for the company with the stock at $380.

Overall: $380 seems reasonable for Amazon.com Inc. (AMZN) on a P/S basis; however, there could be additional upside to UBS's price target on a P/E basis. Many B-schools with that a P/E equal to EPS growth is acceptable, which would put Amazon closer to $700 than $400.