It’s finally a great time to buy Amazon stock

I’m not a long-term fan of Big Tech stocks. Earlier this year, I boldly claimed that Big Tech stocks were dead, calling for the demise of giants like Meta (META), Alphabet (GOOG, GOOGL), Nvidia (NVDA), and Amazon (AMZN).

Since then, those stocks have all fallen more than 20%.

A graph illustrating the evolution of META, AMZN, NVDA, GOOGL stocks

But that was then – and it is now.

Back then, Big Tech stocks were still valued as unstoppable growth giants, trading at lofty valuations that priced perfectly. It was time to sell Big Tech stocks.

Now, however, we have a completely different setup.

Big Tech stocks crashed. Once loved, they are now hated. Once unstoppable, they are now vulnerable. Previously, they traded at high valuations that rose to perfection. And now they are trading at discounted valuations that translate to essentially zero growth.

Yet many of these companies still represent some of the biggest, most successful, and most profitable businesses that have ever existed.

Now is the time to buy Big Tech stocks. That’s exactly what you do with long-term winners. You sell them when they’re overhyped and undervalued. You buy them when they are underpriced and undervalued.

Right now, Big Tech stocks are undervalued and undervalued. So, let’s buy this dip.

One Big Tech stock we’re particularly bullish on here and now is Amazon stock.

Amazon is still Amazon

I’m going to take a wild guess and say that almost every article you’ve read on Amazon lately has been about its “awful” or “awful” third quarter, how its cloud business is “slowing down fast” and advice are “ugly.”

This is the narrative the mainstream media decided to follow – but that is far from the truth.

The Amazon neighborhood wasn’t awful or awful. Yes, revenue exceeded expectations and cloud activity slowed sequentially. But that cloud business continues to grow at a 28% year-over-year rate. And it slowed down in line with cloud slowdowns at Alphabet and Microsoft (MSFT) – so that Amazon Web Services does not lose share. The cloud industry is just going through a temporary cyclical downturn that will reverse when the economy improves.

Nothing to worry about there.

Meanwhile, the advertising industry actually saw its growth rates accelerate in the quarter to 30%. Against the backdrop of Meta and Alphabet’s YouTube division reporting negative ad revenue growth, this is very impressive. Amazon’s advertising business is clearly gaining significant market share.

Online store activity returned to growth after three consecutive quarters of contraction due to the fight against the pandemic. Physical store activity continues to grow steadily.

Of course, profit margins are under pressure and, overall, revenue growth rates are slowing. But that depends almost entirely on currency headwinds, which should ease over the coming quarters.

So when you put it all together, Amazon is still a leader in the age-old growing cloud industry. It’s a share gain in the secularly growing digital advertising industry. And the giant is still successfully defending its throne in the secularly growing e-commerce sector. Amazon remains a behemoth of a company.

When a juggernaut from a company like this comes up for sale, it’s time to buy. And Amazon stock is finally on sale.

Buy this dip.

Amazon Stock is super cheap

After yesterday’s plunge, Amazon shares have become very cheap – cheap enough to justify buying the dip now.

The stock is trading around 1.8 times trailing sales, more than two standard deviations below the stock’s five-year average sales multiple. It is also the lowest valuation multiple for the stock since 2015 – before the company’s cloud business caught fire and made the company consistently profitable.

A graph showing the evolution of Amazon stock against various P/S multiples

This multiple is simply too low for this stock. To illustrate why, let’s model the business over five years.

Amazon’s online retail business is expected to grow at a fairly steady 10% annualized rate over the next several years. The activity of physical stores shows growth of around 5% per year. Advertising activity will likely increase by about 20% per year, representing market share expansion in an industry growing 10% to 15%. And cloud activity will likely grow by around 25% per year, in line with market estimates of cloud spending growth.

Overall, this is a company with clear visibility into teen revenue growth over the next five years. Operating margins can be as high as 10% as high-margin advertising and cloud businesses take a bigger slice of the sales pie. When you run the math on these projections, it becomes clear that Amazon could easily make around $8 in earnings per share by 2027.

Type a simple multiple of 20X on forward earnings. This implies a price target of $160 for 2026 for Amazon shares. Discount 10% return per year. You arrive at a 2022 price target of around $110.

Amazon shares are trading around $100 today. Sure, it’s not much less than $110. But high-quality companies like Amazon rarely, if ever, trade below fair value. When they do, you just have to take advantage of it.

So do yourself a favor and buy this dip with great conviction.

The last word

The current phenomenon happening in Amazon’s stock is a microcosm of what’s happening across the broader stock market.

Due to cyclical fears of a possible recession, dozens of very high quality stocks with growing revenues, earnings and cash flow are seeing their stock prices crash in this 2022 bear market.

It happens all the time. About once a decade, investors start worrying about a possible recession. High-quality stocks see their prices plummet, but their revenues, profits and cash flow continue to grow. Investors who buy the drop in these stocks end up making a lot of money because they always rebound big.

This time will be no different. Investors who buy the drop in high quality stocks that were crushed in 2022 will make a ton of money in 2023 and 24. It’s that simple.

Amazon stocks are one such investment. But it’s far from the only one.

Indeed, we have developed a quantitative system to help us identify the best stocks to buy to take advantage of this phenomenon.

Learn more about this system before stocks come alive.

As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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