Buy AMZN Stock At $230?
Amazon.com (NASDAQ:AMZN) stock has increased by 4% this year, trailing the S&P 500's 7% growth slightly. This modest underperformance primarily results from a mix of valuation apprehensions and the company's significant investment cycle.
Having invested $53 billion into capital expenditures in 2023 and $83 billion in 2024, Amazon is now forecasting a substantial $100 billion expenditure this year, mainly aimed at enhancing its AI capabilities. While these considerable investments may affect short-term profitability, they are essential for Amazon's long-term growth and competitive advantage.
At present, with AMZN trading at $230, the crucial question for investors is straightforward: should you buy, sell, or hold? We believe there is further upside potential for AMZN stock from its current levels. Our conclusion is based on an analysis of AMZN's current valuation in relation to its recent operational performance and its current and historical financial status. Our thorough evaluation of Amazon.com across key metrics—Growth, Profitability, Financial Stability, and Downturn Resilience—indicates a company with robust operational performance and a solid financial base, as elaborated further below.
However, if you are looking for upside potential with lower volatility than individual stocks, the Trefis High Quality portfolio offers an alternative — having outperformed the S&P 500 and yielded returns over 91% since its launch. Additionally, see – Block Inc.: What's Happening With XYZ Stock?
How Does Amazon.com's Valuation Look vs. The S&P 500?
Based on what is paid per dollar of sales or profit, AMZN stock appears costly in comparison to the broader market.
How Have Amazon.com's Revenues Grown Over Recent Years?
Amazon.com's Revenues have experienced significant growth in recent years.
How Profitable Is Amazon.com?
The profit margins of Amazon.com are lower than those of most companies in the Trefis coverage universe.
Does Amazon.com Look Financially Stable?
Amazon.com's balance sheet appears robust.
How Resilient Is AMZN Stock During A Downturn?
AMZN stock has experienced an effect that was marginally better than the S&P 500 benchmark during one of the two recent downturns. Concerned about the effect of a market crash on AMZN stock? Our dashboard How Low Can Amazon.com Stock Go In A Market Crash provides a detailed analysis of the stock's performance during and after previous market crashes.
Putting All The Pieces Together: What It Means For AMZN Stock
In conclusion, Amazon.com's performance across the metrics outlined above is as follows:
On the whole, Amazon.com has shown strong performance across key indicators. From a price-to-sales (P/S) standpoint, a ratio of 3.6 times trailing revenues, combined with low double-digit revenue growth, seems reasonable to us.
While the current price-to-earnings ratio for AMZN may seem slightly elevated, we expect a more substantial growth trajectory in the upcoming years. This is largely due to the increasing impact of Amazon Web Services (AWS), its more profitable cloud computing segment, on the total revenue mix. Related – Amazon Stock: Path To 2x Growth.
Considering these aspects, we believe there is still significant upside potential for AMZN stock from its current position. Naturally, our evaluation might be incorrect. Investors may be reluctant to assign a higher valuation multiple, especially given Amazon's considerable capital expenses, increasing competition, and slower-than-anticipated growth in certain business segments.
However, if you are working with a 3-5 year investment horizon, AMZN stock could be a beneficial addition to your investment portfolio. While it appears there is further upside to AMZN stock, consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offers a responsive method to capitalize on favorable market conditions while minimizing losses when markets decline, as explained in RV Portfolio performance metrics.
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