Stock Analysis & Ideas

Amazon Stock: Well Equipped to Disrupt; Shares Undervalued

Shares of e-commerce and public cloud kingpin Amazon (AMZN) have been stuck in a rut for quite a while. The latest decline has been courtesy of the broader market sell-off, which looks to have mostly offset the company’s strong Q4 numbers that topped Wall Street estimates.

After having fluctuated in a wide consolidation channel for around two years, it seems as though shares of Amazon are starting to become dead money, at least as far as FAANG stocks are concerned.

With so much in the way of disruptive growth prospects to be had over the coming years though, Amazon, the company, is anything but dead money. I’m bullish.

FAANG’s Most Undervalued Stock

The stock was on the pricier end of the FAANG spectrum at north of $3,000 per share. After not doing much in recent years, earnings have had a chance to catch up to the hefty multiple.

At 47.4 times trailing earnings, a case could be made that Amazon stock is really cheap versus the magnitude of high-quality growth that’s likely to be sustained over the decade. Indeed, Amazon is a disruptor at heart, and it’s ready to disrupt new markets, all while defending its turf in the lucrative e-commerce and cloud industries.

Amazon shares deserve to trade at a hefty premium, but how much of a premium is the million-dollar question these days. Ahead of a rising-rate environment, investors are more than willing to punish high-multiple stocks. At nearly 50 times earnings, you could group Amazon in the category of pricey tech stocks.

That said, the firm is a dominant behemoth that looks to be on the cusp of meaningful operating margin expansion, with new CEO Andy Jassy at the helm.

Amazon’s Next Frontier? The Physical Realm

One of Amazon’s most intriguing frontiers is its physical retail push. Amazon is synonymous with e-commerce these days. Its dominance in the digital realm is undeniable.

Still, the firm is looking to spread its wings over the brick-and-mortar space. Why? Omnichannel retail is likely the way of the future. In the post-COVID economy, we can expect more of an equilibrium between the physical and digital realms when it comes to retail.

Amazon’s acquisition of Whole Foods may not have made much sense to some. However, the organic food mart may fit in a part of Amazon’s long-term growth story, as it looks to roll out tech-equipped grocery and convenience stores.

Such physical stores seem ripe for disruption. Still, the fragmented industry is not going to be dominated overnight. In fact, it could take over a decade for Amazon to make a dent in the global c-store market.

Amazon’s partnership with Starbucks (SBUX) should not go unnoticed. The Amazon-Starbucks cashier-less store in New York City may very well be a sign of things to come, as Amazon looks to set its sights on the consumer staple corner of the retail space.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, AMZN stock comes in as a Strong Buy. Out of 34 analyst ratings, there are 34 Buy recommendations.

The average Amazon price target is $4,218.56, implying an upside of 41.3%. Analyst price targets range from a low of $3,600 per share to a high of $5,000 per share.

Bottom Line on Amazon Stock

There’s a lot to love about Amazon stock. It may be, on paper, the priciest FAANG stock. Versus its growth, though, a strong case could be made that AMZN stock is actually the cheapest of the FAANG basket.

The e-commerce business could get a nice margin boost from here, all while Amazon continues investing heavily in cloud, video, gaming, and physical retail to keep that growth rate elevated.

As the firm sets its sights on new markets, expect the Amazon Prime customer value proposition to increase further. Undoubtedly, Prime is shaping up to be one of the stickiest subscriptions out there.

Indeed, we may find ourselves living more and more in Amazon’s world, as the firm knocks down the borders between the physical and digital realms.

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