Amazon: Fundamental Analysis + Next TargetIn the last year, the price of Amazon stock has decreased by more than 30%. Following profits that were poorer than experts had anticipated in 2023, the company's shares had a temporary recovery.
However, Amazon's long-term thesis is still compelling, and this could be a terrific opportunity to purchase the company during the current dip. This is due to a number of factors.
The macroeconomic environment may soon improve.
Although it is still too early to say whether the Nasdaq bear market is finished, there does appear to be some hope. Even though interest rates are high right now, inflation is not decreasing. This might persuade the Federal Reserve to loosen its stringent monetary policy without sending the American economy into a downturn, a situation known as "soft landing."
Although Amazon's stock price appears to be benefiting from favorable market factors, the company's recent results for the fourth quarter ended Dec. 31, 2022, leave much to be desired. Net sales rose 9% year over year to $149.2 billion thanks to growth in North American e-commerce and cloud computing, which helped offset a significant decline in international e-commerce. Net income fell 98% from $14.3 billion to just $300 million.
That's a very troubling result. But investors should look at the situation in the right context. Amazon's business is cyclical, which means it is very sensitive to changes in macroeconomic conditions -- including inflation and rising interest rates, which can hurt consumer confidence.
And while the global economy may weather the recession, many companies are choosing to behave more cautiously, postponing enterprise cloud migrations or moving to cheaper service levels, resulting in slower Amazon Web Services (AWS) revenue growth.
In the long term, e-commerce and cloud computing remain growth opportunities for Amazon. Executives believe public and private enterprises are still in the early stages of moving their computing needs to the cloud.
And in 2023, Amazon plans to bring its e-commerce platform to new markets in Latin America and Africa. The company's scale allows it to achieve cost and network efficiencies to stay ahead of competitors in the industry.
Amazon stock, with a price-to-earnings ratio of 68, doesn't look particularly cheap compared to the S&P 500 average of 22. But investors should keep in mind that, as a cyclical company, its current earnings are unusually low and do not necessarily reflect its long-term earnings potential.
Despite its near-term problems, Amazon remains one of the best bets for long-term e-commerce and cloud computing, and for patient investors, the stock still looks like a buy.
