Stock Analysis & Ideas

Amazon (AMZN): After Acquisition Spree, this Stock is a Bargain

Story Highlights

Amazon stock has been quite stagnant as the excitement following its Q2 earnings results seems to be dying down. With two huge acquisitions thrown into the mix, though, investors have many more things to be enthusiastic about.

Amazon (AMZN) stock has begun to run out of steam in the $140 range, just weeks following its sensational second quarter. Despite all the exciting new developments, including the acquisition of One Medical and iRobot (IRBT) and the development of a TikTok-like social feature, the stock remains down around 25% off its high of around $189 per share. Indeed, Amazon stock appears to be an absolute steal at these levels. The recent M&A spree gives the e-commerce darling a means to expand into new industries.

Simply put, Amazon has not wasted the recent slip in the broader markets. Even if there is an economic contraction on the horizon, Amazon could gain considerable ground over new market rivals it’s looking to pinch.

I remain bullish on shares of Amazon at this juncture. Even if the FAANG trade begins to fade, Amazon is still one of the most disruptive forces in the market today. The firm’s disruptive capabilities helped it power past prior recessions. Looking ahead, the $1.45 trillion company may be in for more of the same as it looks to fuel its next leg higher — one that may very well dwarf the recent slide in shares.

Amazon Scoops Up Roomba-Maker iRobot and One Medical

Amazon has been busy wheeling and dealing of late. While the firm has always been known to have a hand in many pies, recent deals seem to shine a bright light on where the disruptive innovator could be headed next. The acquisition of robotics firm iRobot and One Medical for $1.7 billion and $3.9 billion, respectively, did not come cheap but could help kickstart the firm’s lateral movement into the consumer robotics and healthcare industries.

With momentum in the consumer robotics and healthcare divisions, Amazon may finally have the means to build its “fourth pillar” and diversify away from AWS (Amazon Web Services), e-commerce, and Prime services.

The prior Whole Foods acquisition has not yet taken the world by storm, but Amazon still nabbed an enticing banner that will be ready for the firm once it deems it’s time to double down on its brick-and-mortar push. For now, Amazon seems content with picking and choosing areas to disrupt.

Amazon’s Health Push Could Reignite Growth 

Amazon’s health ambitions are no mystery to investors. From the PillPack acquisition nearly four years ago to Jeff Bezos’ failed healthcare venture with Warren Buffett and Jamie Dimon, it’s always been clear that Amazon saw itself as playing a significant role in the massive industry.

The inefficient healthcare industry also seems ripe for disruption, and the One Medical acquisition appears to create an immediate foundation for Amazon to work its magic.

Undoubtedly, telehealth and other intriguing technologies helped Teledoc (TDOC) skyrocket to orbit in the early innings of the COVID-19 pandemic. Arguably, Teledoc found itself in the right place at the right time. Though the telehealth bubble had its chance to boom and bust, Amazon now seems more than willing to get into the space while most other investors back out.

As Amazon looks to incorporate its own technologies (think telemedicine and convenient drug delivery), I think the sky is the limit for Amazon and its new health endeavors.

Breaking into the field will not be easy, but with such powerful network effects at its side, I do think Amazon’s health pursuit is one that has major upside with minimal downside risk. Amazon’s health rivals are on notice; it’s time to innovate or be left behind, like the many retailers that Amazon crushed over the years.

iRobot Deal Makes Amazon a Top Contender in Home Automation

Compared to the One Medical deal, Amazon’s iRobot acquisition seems less risky but with less in the way of longer-term rewards. Amazon’s slow and steady push into smart home devices has been ongoing for many years. With the addition of Roomba’s owner in the arsenal, Amazon now looks to have a compelling lineup and a new item to pick up come the next Prime Day sale.

The deal doesn’t just stop at the automated vacuum cleaner, though. Amazon will be bringing on new talent that can help its other consumer robots pick up traction. Amazon’s Astro is an intriguing device that could be made so much better by the folks over at iRobot.

As Amazon continues to push into the smart homes of tomorrow, investors and analysts should not discount the added innovative capabilities of the iRobot deal. Home automation is a major growth market that a lot of firms are fighting for. With Roomba in the lineup, Amazon looks to be a top contender poised to expand its lead.

Is Amazon Stock Expected to Rise?

Turning to Wall Street, AMZN stock comes in as a Strong Buy. Out of 40 analyst ratings, there are 39 Buys and one Hold.

The average Amazon price forecast is $176.04, implying upside potential of 21.6%. Analyst price targets range from a low of $118.00 per share to a high of $270.00 per share.

Conclusion: AMZN is Too Cheap to Ignore, Given Growth Prospects

Amazon has been an active buyer of this market dip. One Medical and iRobot are in great hands with Amazon as it looks to increase its disruptive capabilities in each new market.

Amazon stock seems way too cheap to ignore at just 3x sales, given the growth prospects of its fourth (and perhaps fifth) pillar. For now, the healthcare push shows more promise. However, the iRobot deal makes Amazon one of the best automation plays in the market today.


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