Is Amazon Stock A Good Buy?

Is Amazon Stock A Good Buy? The term “visionary” is used to describe those with exceptional foresight. Visionaries interpret historical patterns and current events, then combine those interpretations with imagination to predict or build the future.

Though the word is thrown around carelessly in reference to all sorts of leaders and experts, only a handful of people prove to be true visionaries over time. They tend to be entrepreneurs and innovators who can predict how new products, services, and technologies will change the world. What sets them apart is that they don’t stop with predictions. Their next step is doing the hard work of making their vision a reality.

Jeff Bezos is one of the true visionaries. He bet on the internet long before it was mainstream by building an online bookstore – the first widely successful e-commerce business. His small site quickly expanded beyond books, and a quarter of a century later, Amazon (NASDAQ:AMZN) is one of the world’s largest companies.

Understanding the future of e-commerce and getting in on the ground floor wasn’t the only time Bezos created transformative technology. He was also a pioneer in cloud computing. Amazon Web Services (AWS) started as an experiment, and it now controls more of the world’s cloud computing market than its next two competitors combined.

Amazon stock has gained more than 130,000 percent since the company’s 1997 IPO. When its IPO price is adjusted for the stock splits that occurred in June 1998, January 1999, and September 1999, that IPO price comes to $1.50 per share. Today, Amazon stock trades above $2,000 per share, and another AMZN stock split is approved for early June 2022.

At this point, is Amazon stock a good buy? Does the company still have room to grow? Will Amazon stock go up after the split?

Why Did Amazon Stock Go Down?

Between e-commerce and Amazon Web Services, Amazon was in the right place at the right time with the right services to support consumers and businesses through the pandemic.

When companies had to send employees home, they turned to AWS for the technology they needed to build a remote workforce. Meanwhile, consumers chose e-commerce over brick-and-mortar stores to make it through quarantines, periods of high community transmission, and stay-at-home orders.

Just after the March 2020 market crash, Amazon stock went straight up. It eventually hit more than $3,700 per share based on its extraordinary pandemic-related growth.

However, as COVID vaccines became widely available, employees began returning to the office, and consumers were once again willing to patronize brick-and-mortar stores, that exceptional growth couldn’t be sustained. When rising interest rates and soaring inflation started affecting consumers, Amazon began to suffer in earnest.

After the company announced year-over-year declines in net income, diluted earnings per share, net profit margin, and operating income for first-quarter 2022, Amazon stock went down nearly 30 percent.

When added to the downward trend of the past six months, Amazon stock is trading more than 40 percent lower than it did in late 2021. In late May, shares remained near their 52-week low.

Will Amazon Stock Recover?

It is a tough time in the retail industry, whether customers are in-person or online, and there is no sign that the pressure will let up soon. Interest rates are expected to continue their climb, supply chains are still struggling, and the invasion of Ukraine is contributing to global increases in food and energy prices.

The good news is that Amazon has set itself up for success with a robust warehouse and delivery network. The company is expanding this infrastructure to include third-party merchants. That’s expected to grow demand for Amazon’s subscription service, Amazon Prime, which contributes easy profits – and customer loyalty – to the company’s overall financial results.

Better still, e-commerce isn’t Amazon’s only source of revenue. Amazon is far more than just a retail business. Amazon Web Services delivers high margins, and cloud computing demand is growing.

First-quarter results showed that AWS revenue grew 37 percent year-over-year to reach $18.4 billion. In the first quarter of 2021, AWS revenue only grew 32 percent year-over-year.

AWS operating income increased 53 percent year-over-year for the quarter, and for the 12-month period ending March 31, 2022, AWS generated operating income of almost $21 billion.

It appears that AWS operating profit could reach $25 billion or more in 2022, which means a net profit of more than $20 billion for the year. Some analysts suggest that buying Amazon stock could be worthwhile for the exposure to AWS alone.

In addition to AWS, Amazon is building a comprehensive web-based ad service that promises more opportunities for high-margin sales. Amazon’s revenue from advertising went up more than 25 percent in the past 18 months, and first-quarter ad sales hit $7.9 billion.

Finally, Amazon is experimenting with a variety of technologies that, if successful, could solve some of the biggest issues facing consumers and businesses today. For example, Amazon is working on a technology called “Just Walk Out” to eliminate the need for cashiers and registers in brick-and-mortar shops.

Instead of traditional checkout processes, the technology tracks purchases and collects payments automatically. When the tool rolls out on a national scale, businesses may be able to lower their expenses and keep prices stable, which in turn will steady inflation rates.

Amazon is also building a low-cost solution to make broadband available to underserved communities. That’s a critical initiative in a world where virtual learning and remote work are becoming commonplace. This technology has the potential to resolve a pressing social issue by filling a large gap in the current market.

Is It Too Late To Buy Amazon Stock?

Amazon was the second US company to break the $1 trillion market cap threshold, and it remains above that valuation today – albeit by a slim margin. Though Amazon stock is down from its 2021 highs, there are many reasons to be optimistic about the company’s future.

At current prices, this may be the best opportunity to buy Amazon stock at a relative discount since the March 2020 market crash. It seems that Amazon’s leadership agrees with that assessment – the company is buying back large amounts of stock, which is not a common practice for Amazon.

Researchers, analysts, and market experts are confident that Amazon is a winner. Nearly all who weighed in agree that Amazon stock is a strong buy, and price targets for the next 12 months range from $2,800 to $4,250. The average price target is approximately $3,650 or, post-split, $182.50 per share. In other words, it is not too late to buy Amazon stock.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.