Amazon (NASDAQ:AMZN) benefited immensely from pandemic-led restrictions, growing its top and bottom lines by record margins. However, the scenario over the past 12 months is remarkably different, and Amazon is in a relatively challenging spot. Despite the troubles, it’s done an impressive job of growing its business and setting itself up for a tremendous showing next year. However, AMZN stock is priced in line with the most bearish scenarios. Therefore, with it trading at multi-year lows, we are bullish on AMZN stock.
AMZN stock rose exponentially during the pandemic, reaching an all-time high of $188.65 by July 2021. Its stock has shed a ton of value over the past several months on the back of multiple headwinds. AMZN stock trades at around 1.8 times forward sales, roughly 44% lower than its five-year average. Hence, it’s trading at a highly-attractive price and is poised for healthy upside ahead.
Amazon is a prime example of a business that has demonstrated resiliency and adaptability during the past tumultuous year. Amazon’s business model was more than equipped to handle whatever curves were thrown its way. This determination will likely continue driving it forward in future years. Also, on TipRanks, AMZN stock has a ‘Perfect 10’ Smart Score rating, indicating that it has high potential to outperform the market.
The Bull Case For Amazon
Amazon has demonstrated an extraordinary ability to remain agile, rapidly adapting its services to changing customer needs and spearheading new opportunities in growing marketplaces. With a record-breaking 40% share of the U.S. e-commerce space, it’s the clear leader in the space.
Moreover, due to its online marketplace, it has become a leading player in the digital advertising space. Marketers value Amazon for its ability to deliver powerful ads that generate leads and encourage brand loyalty with consumers who are already looking for a product in their search. Estimates show that it’s the fourth-largest advertiser in the world and is nearly leading the world in ad revenue growth.
Furthermore, Amazon’s Web Services (AWS) has rapidly established itself as the unrivaled leader in the booming cloud computing industry. Its operating margins are almost three times higher than its closest competitor, Microsoft Azure. AWS shows no signs of slowing down either, and the cloud computing market is expected to grow by 20% yearly and reach an eye-watering $1.7 trillion by 2029.
The Bear Case For Amazon
Despite the immense success of Amazon in the online shopping realm, the sector is notorious for its low-profit margins. This has proved especially challenging for Amazon amid high inflation. This immense pressure has resulted in underperformance for the firm in recent quarters. In its third quarter, sales were up just 14.7%, earnings fell from $0.31 per share to $0.28 per share, and free cash flows were firmly in the negative.
Despite having over $50 billion in cash and short-term investments, Amazon’s standing could come under scrutiny if it’s forced to take on additional debt. However, those who oppose the stock do not look at the big picture. If inflation levels normalize, its retail operations’ cost pressures should decrease and become less of a concern.
Moreover, the company is positioned to gain increased profitability due to its higher-margin segments that are effectively shielded by inflationary pressures. As such, while Amazon may be vulnerable, its future looks bright despite macroeconomic troubles.
Is Amazon Stock a Buy, According to Analysts?
Turning to Wall Street, AMZN stock maintains a Strong Buy consensus rating. Out of 36 total analyst ratings, 33 Buys, three Holds, and zero Sell ratings were assigned over the past three months.
The average AMZN stock price target is $140.50, implying 58.9% upside potential. Analyst price targets range from a low of $103 per share to a high of $192 per share.
Takeaway: Amazon Looks Undervalued
Amazon is a titan of the tech world. It’s certainly had its share of issues, especially regarding its cost structures and fulfillment center operations. However, its business overall has proven to be incredibly resilient. The real crown jewel of the business is AWS, and though it makes a relatively small percentage of the company right now, its profits are superb. Moreover, AMZN stock looks heavily undervalued right now.
Of course, things could get worse before they get better in the short term for Amazon, but if you take the long-term view with them, you’re presented with what looks like an incredible opportunity.
