Amazon Back in Favor with Investors

After slumping in the first half of 2022, shares of Amazon.com (AMZN) are back in favor with investors.  Amazon is the best-performing stock among its peers of mega-cap technology stocks, climbing +30% since mid-June, compared with a +14% gain for the entire Nasdaq 100 Stock Index.  ($IUXX) (QQQ) Alphabet (GOOGL) is up only +5% since mid-June, and Microsoft (MSFT) is up just +9%.

Shares of Amazon tumbled to a 2-1/2 year low in late May amid slowing revenue growth, soaring costs, and a surge in interest rates that hammered the entire technology sector.  Nevertheless, Amazon has been among the best-performing stocks in the past two decades, with a gain of more than 16,000%.  Shares of Amazon have gained since June after the company focused on cutting expenses, improving profitability, and returning capital to shareholders through a $10 billion stock buyback plan announced in March.

Amazon CEO Jassy has focused on cutting costs to boost the company’s profitability.  The total workforce at Amazon shrank by about 100,000 in Q2, and the company is cutting back on warehouse space as it unwinds a pandemic-era expansion amid slowing growth.  Despite a recent slowing in profits, Amazon is still willing to spend on acquisitions.  It recently acquired 1Life Healthcare for $3.49 billion and iRobot Corp for $1.65 billion.  Analysts have generally been upbeat about the deals, seeing them as a sign the company is seeking new avenues of growth.

Despite the recent strength in Amazon, the stock is still down about -20% this year.  Nevertheless, Amazon remains one of the most popular stocks on Wall Street, with 58 out of 60 analysts who cover the company maintaining a buy rating on the stock, according to Bloomberg data.  Apple (AAPL), by comparison, has fewer than 75% of analysts recommending its shares.

Even though Amazon’s stock price has cheapened this year, its valuation remains elevated.  The stock sells for 47 times earnings projected over the next 12 months.  By contrast, the Nasdaq 100 Stock Index has an average multiple of only 23 times earnings projected.  Bokeh Capital Partners thinks that with Amazon’s revenue this year projected to expand at the slowest pace in ten years, it is not worth paying up for the stock saying, “if you buy Amazon here, what your betting on is that it’s going to be the only place we shop in 10 years and it’s just not true.” 

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