This isn’t the first time Amazon (AMZN) has stock crumbled as part of a broader sell-off in high-multiple growth stocks. The recent sell-off in growth stocks has some looking all the way back to the dot-com bust of 2000.
This time around, Amazon is a behemoth that we all can’t live without, not just a startup that few were aware of. When Amazon stock imploded in 2000-01, the company itself was still doing incredibly well across many metrics.
Its founder and CEO Jeff Bezos was focused on moving forward and continuing to improve upon such metrics. Eventually, the stock price followed. Though it took many years for investors to recognize that Amazon was one of the few babies that was thrown out with the bathwater.
As a $1.4-trillion company, Amazon has held its own far better than most growth stocks that popped in 2020. Like back in 2000, the trajectory of the stock does not tell the full story of how the company is actually doing.
With a dominant share of e-commerce and the public cloud, it’s clear that Amazon is still in the business of disrupting new markets and creating a moat.
Nothing much has changed about Amazon in that regard. It’s moved on from books, and it’s moving on from digital retail and the cloud, with hands in many other pies, including video-streaming, automation robotics, video-game streaming and even physical retail. I’m bullish.
Best Bargain in the FAANG Group?
Shares of Amazon are down around 27% from their all-time highs, effectively shedding around $1,000 off the share price. With shares back in mid-2020 levels, I think AMZN stock is arguably one of the most undervalued members of FAANG.
Unlike Meta Platforms (FB), which is the cheapest by traditional valuation metrics, Amazon has no potentially existential issues. It’s not disrupted. It’s still the disruptor.
The only knock against the stock is that it’s in desperate need of a share split to open the door to the new class of retail investors. On Wednesday, the company announced a 20-for-1 stock split and $10-billion stock buyback plan.
As the company continues innovating, I think it’ll justify its seemingly hefty 43 times earnings multiple. Yes, that’s expensive, but it’s not as expensive as it could be, given the disruptive growth that could allow it to become a leader in other industries.
While the stock could crumble over the medium term, I find it hard to believe that the stock will be kept down for a prolonged period, as the firm moves closer towards its goals.
Whether it be further strengthening its position in the cloud or logistics to enhance the value proposition for its Prime users, or making a splash in gaming and brick-and-mortar, you do not want to bet against AMZN stock just because shares are back on the retreat.
Sights Set on New Markets
If Amazon sees economic profits to be had, you can bet that it’ll funnel considerable sums into the new market to give incumbent players the squeeze. While Amazon is hardly a monopolist, it does have some of the deepest pockets on the planet.
At the end of the day, consumers get an improving value proposition. That alone should help keep anti-trust regulators at bay versus the likes of Meta.
Moving ahead, I’d look for Amazon to aggressively push into video gaming. It could do to gaming what it did to video with Prime Video. Further, a solid gaming presence could allow the company to roll out the red carpet come time for the metaverse, which will likely be primarily gaming-focused.
Amazon’s gaming ambitions seem clearer than its brick-and-mortar pursuit. The company is shuttering its physical bookstores and 4-Star pop-up shops. Clearly, the model didn’t work out.
As for its grocery and convenience store business, though, I do think that area looks ripe for disruption. Staples are one segment of retail that Amazon has yet to really shine in. This could change as the firm’s logistical capabilities (think same-day or same-hour shipping) and physical presence improve with time.
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 51.4%. 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
Amazon stock has been quite dreadful to own over these past two years. Investor patience has been tested. The business itself, though, continues to fire on all cylinders.
In due time, I expect the stock to reflect progress in the business. Until then, the stock looks to be one of the most intriguing dip candidates in the market.
At over 40 times trailing earnings, the multiple seems stretched. Given the magnitude of growth, though, I just don’t see AMZN stock going for south of 35 times earnings.
It’s far too great a company to fall to such levels. The long-term profitability prospects look bright, but they’ll be even brighter if the company is allowed to do its spend.
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