Key Takeaways:
- Amazon has delivered annualized returns of 26% over the past decade, attracting big investments from hedge funds like Point72 Asset Management.
- Analysts project 10% annual revenue growth and 20% annual earnings growth over the next three years.
- Despite strong growth prospects, the stock trades at 32x expected earnings, near 5-year lows.
- Based on future earnings projections, Amazon could deliver a 42% total return (19% annualized) over the next two years.
- The tech stock trades at a 30% discount to consensus price targets.
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While Amazon (AMZN) remains one of the largest companies in the world, it continues to grow at an attractive pace while trading at a reasonable multiple.
Here’s a detailed analysis of why Amazon appears significantly undervalued in the current market environment.
Is Amazon Stock a Good Buy Right Now?
Amazon is a global e-commerce and cloud computing giant that generates revenue through multiple channels:
- Its online retail platform
- Cloud computing services via AWS
- Digital streaming through Prime Video
- An expanding advertising business
- Various subscription services
Amazon stock has delivered an impressive 26% annualized return in the past decade, comfortably outpacing the broader markets.
Its exceptional performance continues to attract major institutional investors, with Point72 Asset Management recently making Amazon their top holding.
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Amazon’s extensive logistics network provides a competitive moat that raises entry barriers. Its leadership in the public cloud market enables it to grow profit margins steadily while an expanding ecosystem increases customer switching costs.
What Does Wall Street Expect from Amazon?
Over the next three years, analysts expect Amazon’s revenue to grow by 10% annually, while earnings are forecasted to grow at 20% annually. This is really strong growth for a company with a market cap of more than $2 trillion.
While Amazon’s growth has moderated in recent years, it continues to expand faster than other tech giants.
Key growth drivers include:
- Continued expansion of AWS as businesses accelerate cloud adoption
- Rapidly growing high-margin advertising business
- International market penetration
- Emerging opportunities in healthcare, grocery, and financial services
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Valuation Analysis Points to Significant Upside
Amazon is currently trading near its lowest valuation multiple in the past five years, at 32 times expected earnings. Given the company’s growth profile, this represents a compelling opportunity.
While Amazon could easily command a 40x P/E ratio based on its 20% annual earnings growth rate, we’ll use a very conservative 30x P/E multiple for our valuation analysis.
Amazon is expected to reach approximately $9.50 in earnings per share in three years. At a 30x P/E multiple, this suggests the stock could be worth $285 per share in two years.
Current price levels imply a total return of about 42% or 19% annually over the next two years, outpacing the stock market’s long-term average annual return of 10%.
This aligns closely with analyst sentiment, as the average price target among the 63 analysts covering Amazon is approximately $265 per share, suggesting a 32% upside from current levels.
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TIKR Takeaway
Amazon provides an attractive opportunity for investors seeking exposure to a high-quality business with substantial competitive advantages, solid growth prospects, and a reasonable valuation.
Despite its massive size, the company continues to innovate and expand into new markets, suggesting its growth story is far from over.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
