Amazon.com Prime Day offers a frenzy of deals and discounts, but the best bargain of all might be Amazon stock, analysts say.
Shares are off by 32% for the year-to-date, lagging the broader market by about 13 percentage points. Rising fears of recession and its potential impact on retail spending are partly responsible for the selloff. The market's rotation out of pricey growth stocks and into more value-oriented names is likewise doing AMZN no favors. See the chart below:
True, Amazon is hardly alone when it comes to mega-cap names getting slaughtered in 2022. Where the stock does distinguish itself is in its deeply discounted valuation, and the mass of Wall Street analysts banging the table for it as a screaming bargain buy.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
AMZN's Elite Consensus Recommendation
It's well known that Sell calls are rare on the Street. For different reasons entirely, it's almost equally unusual for analysts (as a group, anyway) to bestow uninhibited praise on a name. Indeed, only 25 stocks in the S&P 500 carry a consensus recommendation of Strong Buy.
AMZN happens to be one of them. Of the 53 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 37 rate it at Strong Buy, 13 say Buy, one has it at Hold, one says Sell and one says Strong Sell.
If there is a single point of agreement among the many, many AMZN bulls, it's that shares have been beaten down past the point of reason.
Here's perhaps the best example of that disconnect: At current levels, Amazon's cloud-computing business alone is worth more than the value the market is assigning to the entire company.
Just look at Amazon's enterprise value, or its theoretical takeout price that accounts for both cash and debt. It stands at $1.09 trillion. Meanwhile, Amazon Web Services – the company's fast-growing cloud-computing business – has an estimated enterprise value by itself of $1.2 trillion to $2 trillion, analysts say.
In other words, if you buy AMZN stock at current levels, you're getting the retail business essentially for free. True, AWS and Amazon's advertising services business are the company's shining stars, generating outsized growth rates. But retail still accounts for more than half of the company's total sales.
More traditional valuation metrics tell much the same story with AMZN stock. Shares change hands at 42 times analysts' 2023 earnings per share estimate, according to data from YCharts. And yet AMZN has traded at an average forward P/E of 147 over the past five years.
Paying 42-times expected earnings might not sound like a bargain on the face of it. But then few companies are forecast to generate average annual EPS growth of more than 40% over the next three to five years. Amazon is. Combine those two estimates, and AMZN offers far better value than the S&P 500.
Analysts Say AMZN Is Primed for Outperformance
Be forewarned that as compellingly priced as AMZN stock might be, valuation is pretty unhelpful as a timing tool. Investors committing fresh capital to the stock should be prepared to be patient.
That said, the Street's collective bullishness suggests AMZN investors won't have to wait too long to enjoy some truly outsized returns. With an average target price of $175.12, analysts give AMZN stock implied upside of a whopping 55% in the next 12 months or so.
-
Bonds Pay in Good and Bad TimesBonds can act as a financial safety net through good times and bad. But different bonds carry different returns and risks, so do your homework before investing.
-
When You Need Capital Quickly, Think 'Ready, Set, Fund': A Financial Adviser's StrategyInvestors must be able to free up cash to meet short-term needs from time to time. This strategy will help you access capital without derailing your long-term goals.
-
I'm an Estate Planner: Moving Family Assets to a Safe Haven Abroad Could Be a Huge Headache for Your HeirsIn troubled times like these, wealthy clients may seek financial refuge outside of the U.S. But that could cause more tax and estate problems than it solves.
-
S&P 500 Extends Losing Streak Ahead of Powell Speech: Stock Market TodayStocks continued to struggle ahead of Fed Chair Powell's Friday morning speech at Jackson Hole.
-
A Timeline of Warren Buffett's Life and Berkshire HathawayBuffett was the face of Berkshire Hathaway for 60 years. Here's a timeline of how he built the sprawling holding company and its outperforming equity portfolio.
-
What Will Powell Say In His Jackson Hole Speech?Fed Chair Jerome Powell will likely walk a fine line in his Friday morning speech at the Jackson Hole symposium, but Wall Street is hoping for rate-cut clues.
-
Fall Is Tax Time? Yes! Act Now to Make Needed AdjustmentsReview your withholdings, contribute to tax-saving HSA and FSA accounts, manage a bonus' impact and adjust for major life events such as weddings and job changes.
-
Board Service in Retirement: The Best Time to Join a Board Is Before You RetireMany senior executives wait until retirement to take a seat on a corporate board. But making this career move early is a win-win for you and your current organization.
