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30% Cheaper, Is Amazon Stock A Buy?

By Haris Anwar/Investing.comStock MarketsSep 26, 2022 01:40PM ET
www.investing.com/analysis/30-cheaper-is-amazon-stock-a-buy-200630322
30% Cheaper, Is Amazon Stock A Buy?
By Haris Anwar/Investing.com   |  Sep 26, 2022 01:40PM ET
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  • Amazon stock has nearly shed all its pandemic gains
  • It's hard to call a bottom yet for the stock, given the uncertain macroeconomic environment
  • However, Amazon continues to seek acquisitions, diversifying its market presence

So far this year, Amazon.com (NASDAQ:AMZN) is the worst-performing stock in the trillion-dollar-market-cap club that includes Apple Inc (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOG). The Seattle-based giant's shares have lost about 30% of their value in the past 12 months.

AMZN Weekly Chart
AMZN Weekly Chart

The steep decline has deprived the company's investors of almost all pandemic gains. However, it remains hard to call a bottom for the stock as interest rate hikes keep hitting stocks like Amazon by diminishing the value of their future earnings. Furthermore, inflation is driving up costs, while a stronger dollar is hurting overseas profits.

With a market cap of $1.18 trillion, the Seattle-based Amazon remains the U.S.'s fourth-most valuable company, trailing Apple, Microsoft, and Alphabet. Despite investors' nervousness and the market volatility, I remain bullish on AMZN's growth prospects and expect shares to rebound in the months ahead.

While Amazon's core e-commerce business has been struggling with high costs and slowing growth in consumer demand, the company's other units continue to show strong growth.

Revenue for Amazon Web Services grew 33% in the second quarter to $19.7 billion. Amazon's advertising business, which the company recently began breaking out financial data, grew 18% to $8.8 billion in the quarter.

Amazon 10-Year Revenue Growth
Amazon 10-Year Revenue Growth

Source: InvestingPro

Belt-Tightening After Massive Expansion

Considering its healthy balance sheet, high free cash flows, and highly diversified business model, it's not difficult to see that Amazon remains in a solid position to withstand the current hostile economic environment.

Furthermore, the company has been taking steps to curb expenses. The total workforce at Amazon shrank by about 100,000 in the second quarter, and the company is cutting back on warehouse space as Chief Executive Officer Andy Jassy unwinds a pandemic-era expansion amid slowing growth. Fulfillment expenses rose less than analysts projected last quarter.

Despite this belt-tightening era, Amazon isn't letting growth opportunities pass. It continues to seek acquisitions that further strengthen its market position and diversify its revenues away from its core e-commerce business.

During the past quarter, Amazon announced the buyout of virtual healthcare company One Medical for $3.49 billion and iRobot Corp., maker of the Roomba vacuum, for $1.65 billion, receiving praises from analysts who see long-term value in these deals.

Amazon's leading position in many areas in which it operates is the main reason that most Wall Street analysts rate its stock a buy. In an Investing.com poll of 54 analysts, 49 rate the stock as a buy, with their consensus 12-month price target showing a 51.68% upside.

AMZN Consensus Estimates
AMZN Consensus Estimates

Source: Investing.com

Of course, owning Amazon still comes at a price, even though the stock has gotten cheaper this year. The stock sells for 47 times the earnings projected over the next 12 months. The Nasdaq 100, by contrast, has an average multiple of about half that.

Still, betting on the company has been hugely profitable for long-term investors, with its stock surging about 900% during the past decade.

Bottom Line

Amazon stock has been the worst performer among the largest mega-cap tech giants in the bear market. But the giant's long-term investment appeal remains intact, given its dominance in e-commerce and explosive growth in its cloud and advertising businesses. On the way up, AMZN is well positioned to outperform its peers, in my view.

Disclosure: At the time of writing, the author is long on AMZN, AAPL, and MSFT. The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

30% Cheaper, Is Amazon Stock A Buy?
 

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30% Cheaper, Is Amazon Stock A Buy?

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Comments (10)
Larry Knight
Larry Knight Sep 27, 2022 2:14PM ET
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Waiting until the S&P botoms out is a good idea
John Hill
John Hill Sep 27, 2022 7:22AM ET
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amazon will be a buy after it files bankruptcy. just like when gm did.
Nick Passarella
Nick Passarella Sep 26, 2022 8:55PM ET
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Companies stocks that split, shares seem to return to previous level before split in the upcoming years. example TSLA
Joseph Obrzut
jzut Sep 26, 2022 5:31PM ET
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Nibble with fractional shares. Will it be higher in the future? Market history says yes.
John Hill
John Hill Sep 26, 2022 5:31PM ET
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Amazon is technically bankrupt. do your due diligence.
Richie Berg
Richie Berg Sep 26, 2022 2:21PM ET
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Buy when there is blood in the streets or the VIX is above 50.
Alberto Tomba
Alberto Tomba Sep 26, 2022 2:21PM ET
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Is there already enough blood in the streets to buy AMZN?
aragash dubai
aragash dubai Sep 26, 2022 2:15PM ET
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1000081366083
Robert Nchor
Robert Nchor Sep 26, 2022 2:12PM ET
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I agree that Amazon will weather the economic problems. We don’t how far the Fed is willing to go with their rate hikes and that mesnd all the big tech againts can still go down significantly.
João Moreira
João Moreira Sep 26, 2022 2:07PM ET
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not yet. Let it drop a little more
wassim azhari
wassim azhari Sep 26, 2022 2:04PM ET
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No its not, maybe a buy at $30
Erikke Evans
Erikke Sep 26, 2022 2:01PM ET
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So the real question is.... how much money have you lost so far on AMZN, AAPL, and MSFT?
Joseph Obrzut
jzut Sep 26, 2022 2:01PM ET
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100 AAPL at 23 after the 4/1 split. MSFT  50 at 52. Apr of 2016. 1 AMZN at 113.50 after the 20/1 split.
 
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