The recent decline in the company’s stock price, combined with expectations for sustained long-term earnings growth, has driven its valuation to levels not seen since its public debut in 1997. This situation may mitigate any further downside should the broader market experience additional weakness.
Clayton Allison, a portfolio manager at Prime Capital Financial, remarked, “It’s difficult to overlook Amazon’s current multiple, which appears attractive compared to both the tech sector and retail. With several strong secular trends in its favor, this presents a remarkable opportunity.”
Despite a widespread decline in tech valuations during the recent market downturn, Amazon’s price-to-earnings ratio is notable when compared to its historical figures. Currently, the stock is trading at approximately 28 times its projected future earnings, which is about half of its 10-year average and lower than that of major retail competitors like Walmart Inc. and Costco Wholesale Corp., which previously had lower multiples. It also trades at a discount compared to Apple Inc., which was considerably cheaper than Amazon just a few years back. The decrease in valuation over recent years can be attributed to Amazon’s emphasis on improving efficiency and cutting costs, resulting in increased profitability. However, the short-term impact has largely stemmed from the broader market selloff. So far this year, Amazon shares have fallen by 6.3% and have faced seven consecutive weekly declines, marking the longest streak since May 2022. While Amazon has underperformed compared to the Nasdaq 100 Index this year, it has slightly outperformed the Bloomberg Magnificent 7 Index.
On Wednesday, the stock experienced a minor dip of 0.1%. Wall Street analysts maintain a largely optimistic outlook on the fundamentals of Amazon’s e-commerce and cloud-computing divisions, particularly Amazon Web Services. Over 95% of analysts tracked by Bloomberg recommend purchasing the stock, which is currently trading more than 30% below the average analyst price target.
Brian White, an analyst at Monness Crespi Hardt & Co., recently reiterated a buy rating and set a price target of $265 for the stock, noting that Amazon’s profitability remains below its long-term potential. He stated, “The company’s long-term growth trajectory looks promising across various sectors, including e-commerce, AWS, digital media, advertising, Alexa, robotics, AI, and beyond.”
