Amazon.com (AMZN) is a Seattle-based multinational conglomerate that specializes in e-commerce, cloud computing, digital streaming, and artificial intelligence. Not only is it one of the Big Five companies in the U.S., but also the world’s most valuable brand. As such, AMZN is an incredible long-term growth stock that has lived up to its high valuation over the years.
This company’s impressive growth comes from decades of heavy investment in the company’s core infrastructure. As much an e-commerce platform as a logistics company, Amazon has built a completely integrated end-to-end marketplace for consumers. With a first-mover advantage, Amazon has become the leading e-commerce player in North America and a hyper-growth stock that continues to blow away expectations each and every quarter.
Indeed, Amazon currently takes the top spot globally for its online marketplace, AI-assistant provider, and cloud computing platform. AMZN stock is one that has seen volatility in the past due to its valuation multiple. However, there’s a reason why this stock continues to soar higher.
I remain very bullish on AMZN stock over the long term. Let’s take a look at why analysts and the overall market tend to agree. (See Analysts’ Top Stocks on TipRanks)
Cutback on Fulfillment Expenses
Amazon spent nearly $34 billion on fulfillment expenses in 2021, and the company is looking to change that. Accordingly, Amazon is planning to open a chain of department stores to expand its brick-and-mortar footprint.
Wait, what?
That’s right. Amazon’s now looking to get into the space currently dominated by Macy’s, JC Penny, Nordstrom, and others. The stock prices of these competitors dropped on the news.
However, Amazon’s rationale for this move seems to be clear. The company is looking to improve its return process for customers while enhancing buying opportunities from physical locations. There’s still something about physical retail that seems to make sense.
Accordingly, Amazon plans to have each store come in at roughly 30,000 sq. ft. The two key markets Amazon is looking to start off in are California and Ohio. From a shipping standpoint, these are strategic locations to start.
Amazon has already made some headway in the physical retail space, with the company’s purchase of Whole Foods a few years back. However, Amazon has obviously noted additional ways of growing its revenue and bottom-line earnings, with this move being the latest investment the company is willing to make.
If history is any guide, Amazon knows what it’s doing. Disrupting age-old sectors is what this company is known for. Accordingly, investors in AMZN stock haven’t batted an eye at this move. Rather, this stock has continued to hover around its all-time highs for some time of late.
That’s Not to Say There Aren’t Risks
AMZN stock has seen some big fluctuations in recent weeks, as a result of a number of catalysts.
Investors have become concerned with the potential for rising interest rates hurting the valuations of high-growth tech stocks. Additionally, the Evergrande Group crisis in China has posed what could be a systemic risk to the global economy.
Given these potential macroeconomic headwinds, AMZN stock has continued to ebb and flow along with the broader market. Indeed, given Amazon’s size, much of the price action in the overall market has to do with the company’s individual performance. Accordingly, investors buying AMZN stock right now are buying a rather large slice of the overall U.S. economic pie.
For those bullish on where the U.S. economy is headed, there’s nothing to worry about. However, risks related to how hot the economy will run could hurt Amazon in the medium term. Accordingly, investors ought to take these risks into consideration when modeling AMZN stock.
Numbers Don’t Lie
AMZN stock has continued to hover around the $3,380 level for some time. This appears to be a key support level for this stock and is within spitting distance of the company’s one-month high.
For investors bullish on a stock that can outperform the market, AMZN stock looks like an intriguing pick. Indeed, this company’s average return over the past ten years is around 32% per year. However, since last year, AMZN has been relatively quiet, compared to a rallying S&P 500 that is up by 29% during this period.
That said, Amazon’s valuation at roughly $1.7 trillion implies a price-to-earnings ratio of around 60. For any stock, that’s high. However, for Amazon, this is among the lowest multiples it’s seen historically.
Accordingly, investors appear to be viewing this stock as a long-term, stable holding with higher-than-average growth rates. Indeed, that view appears to be one that makes sense right now.
Nonetheless, Amazon’s current multiple isn’t too far off from where the overall market is right now. Given the average price-to-earnings multiple of 50 for Amazon’s sector, this is a company trading at only a slight premium to its peers. For a company of this quality, that’s certainly enticing for long-term growth investors.
Wall Street’s Take
Turning to Wall Street, Amazon has a Strong Buy consensus rating, based on 31 Buys assigned in the past three months. The average Amazon price target of $4180.13 implies 21.5% upside potential.
Analyst price targets range from a low of $3775.00 per share to a high of $5000.00 per share.
Bottom Line
There may indeed be some near-term risks to AMZN stock investors should be aware of. Many of these are listed in this article.
However, the extent to which these risks are already factored into the equation is what investors need to consider. At these levels, Amazon looks attractive relative to its long-term growth prospects. Additionally, as a leading e-commerce provider, this is a company with a strong long-term growth outlook that other companies simply don’t possess.
Accordingly, AMZN stock looks like a no-brainer right now. Sure, this stock could dip on any significant news moving forward. However, in terms of company-specific risks versus catalysts, there are reasons to like where Amazon is positioned right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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