Shares of e-commerce giant Amazon (NASDAQ: AMZN) jumped more than 12% yesterday following the announcement that CEO Andrew Jassy will oversee the company’s cost-cutting initiatives. In addition, the rise in stock prices was helped by weaker inflation data (CPI) for October. Given the long-term growth potential, current valuation levels present a good buying opportunity.
Yesterday, Jassy indicated that the company may consider reducing or suspending some unprofitable activities. Amazon’s Alexa business, which has more than 10,000 employees, is also being assessed.
Let’s take a closer look at Amazon’s stock and its long-term potential for making the right investment decision.
Amazon’s long-term growth story
Amazon has a dominant position in two relatively essential business categories: Retail and the Cloud. Both retail and cloud computing have a large total addressable market or TAM, presenting a significant growth opportunity.
While retail posts hundreds of billions in year-over-year revenue, its AWS cloud business generated $62 billion in revenue in 2021 and is growing more than 35% even at that scale with a margin. operating rate above 30%.
Amazon has a very strong brand, driven by its 5/10 year lead over the competition in e-commerce and the cloud. Overall, both companies have a long streak of growth.
Updated rating from Amazon
Notably, Amazon is the first public company in the world to lose nearly $1 trillion in market value. Amazon’s market cap has grown from $1.88 trillion last year to $975 billion currently.
Since Amazon is home to several businesses under its umbrella, we believe EV/EBITDA is the best metric to gauge Amazon’s valuation. The company is trading at a huge discount to its own historically high averages. Currently, Amazon stock is trading at around 14x EV/EBITDA (on a forward-looking basis), compared to its own historical five-year average of 24x. This implies a whopping 42% discount. Investors may want to buy Amazon shares, which may no longer be available at these attractive levels.
Is Amazon buy, store or sell?
The Wall Street community is clearly bullish on the stock. Overall, the stock commands a strong buy consensus rating based on 32 buys and one sell. Amazon’s average price target of $142.29 implies 47.25% upside potential from current levels.
Amazon’s stock price is down nearly 45% in the past year. A combination of supply chain issues, high inflation and macroeconomic factors have caused the company’s stock price to fall sharply year-to-date. This could be an attractive entry point for investors. We expect the stock price to start rising over the next two quarters as investors look past these short-term issues.
No wonder, TipRanks’ Stock Investors tool shows that investors currently have a positive stance on Amazon, with 3% of investors on TipRanks increasing their exposure to AMZN stocks over the past 30 days.
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