amazon stock undervalued

Amazon (NYSE: AMZN) stock has fallen more than half from its peak and also lost its status as a $1 trillion dollar company. Meanwhile, after the crash, even some of the value investors find the stock attractive.

Notably, along with Amazon, Tesla and Meta Platforms also lost fell out of the trillion-dollar club. Amazon stock underperformed the markets badly in 2021 also where it barely closed in the green while the S&P 500 rose almost 27%.

The stock’s underperformance has caught the eye of several analysts as well as fund managers. Famed value investor Bill Miller has disclosed that his hedge fund Miller Value Partners has added more Amazon shares and termed the stock “one of the easiest names in the market.”

He added, “If it takes three years for Amazon to get back to where it was a year ago to make 25% a year, I think that’ll easily beat the market.”

Notably, 2022 was the second worst year for Amazon stock since the dot com bust. Amazon became the first company to lose $1 trillion in market cap. Apple too joined the dubious club this year after its market cap fell below $2 trillion on the first trading day of 2023.

Amazon is Witnessing a Growth Slowdown

Amazon is witnessing a growth slowdown and its sales growth fell to the lowest level in two decades in Q2 2022. AWS which has been its cash cow is also witnessing a growth slowdown and its topline growth fell to the lowest-ever level in Q3 2022. The company started to separately report the cloud segment’s earnings in 2015 only.

To make things worse, AMZN finds itself overstaffed and has also overinvested in capacity. High inflation is also eating into its profits. Also, as brick-and-mortar companies ramp up their e-commerce operations, Amazon is facing competitive pressures.

Recently, Amazon announced that it would increase the layoffs to 18,000. Previously, it was looking to fire around 10,000 employees. The cost cuts would help the company improve its margins. Several other US tech companies have also announced layoffs amid the slowdown.

Famed Value Investor Finds Amazon Stock Undervalued

Miller believes that AMZN would report record profits this year. He is also bullish on the company and believes that its cloud business is almost worth the company’s total value.

Previously, Redburn said that Amazon’s cloud business would eventually be valued at $3 trillion and Amazon would look at listing it in the future. Many other analysts also find AMZN stock grossly undervalued. There is a guide on buying undervalued stocks.

Notably, Amazon is among brokerages’ top ideas for 2023. Citi, Bank of America, Loop Capital, Goldman Sachs, and JPMorgan are among the firms which have listed AMZN as a top pick for this year. There is a guide on buying Amazon stock.

In his note Loop Capital analyst Rob Sanderson said, “We like AMZN for the significant earnings leverage as the cost structure begins to normalize. If unit economics were to fully normalize by 2024, we estimate AMZN’s consolidated operating margin could reach double digit-percentage levels vs. the current consensus estimate of 4.9%.”

US Stock Market 2023 Outlook: Analysts Have Divergent Views

Amazon still has a strong moat and competitive advantages. However, it needs to navigate the tough macro environment. 2022 was a challenging year for US stocks as well as the economy. Wall Street analysts are divided on whether 2023 would be any better for the US economy amid rising recession fears.

Incidentally, all FAANG stocks underperformed the S&P in 2022 and only Apple managed to outperform the Nasdaq. It was the rare year when FAANG stocks lost their market leadership as investors shunned growth names.

2023 started on a negative note for US stocks but markets rebounded thereafter. Investors next look forward to the December CPI release and bank earnings this week.

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