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Should I invest in AMAZON Stock in 2022?
Stock Ticker
AMZN ($AMZN)
Stock Name and Stock Exchange Platform
Amazon.com Inc. – NASDAQ (NASDAQ: AMZN)
The Stock Sector
Amazon is an American tech giant, considered one of the leading providers of online retail shopping services, and a mammoth in e-commerce in terms of market share.
It operates through three major segments: Retail, International, and Amazon Web Services (AWS).
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Retail services account for the majority of its operations (70%), followed by AWS cloud storage and related services (10%).
International services include the sale of consumer products and subscriptions through respective websites. This segment makes up 20% of total operations and is led by Germany and UK.
Amazon was originally formed to be an online book store but has diversified over time to include a plethora of businesses under its wing.
Amazon’s ecosystem is an all-inclusive one and has been labeled as “the everything store”. It also has stakes in digital streaming, artificial intelligence, and many others.
The company is founder-led by Jeff Bezos who recently stepped down as CEO in 2021. Amazon was established in 1994. It has its headquarters in Seattle, Washington, USA.
Recent News on Amazon
Amazon has been making headlines as is typical for the high-flying FAANG stocks. The company has announced yet another stock split this year, that will be effected in July 2022.
It has become a norm for the company to do a split on an annual basis. The perception of the aftermath of a stock split is relative among market experts. It is both a blessing and a curse.
The company also made a major management change with the taking over of the CEO post by Andy Jassy. He has been handsomely compensated for the year bagging a whopping $212.l7M.
Amazon is having quarrels with Future Retail Ltd due to disagreements over a merger with Reliance Retail. Amazon has voiced a plea that the asset of the future should not be alienated till the dispute is over.
The supreme court is now contemplating whether to pass the restraining order. The CEO of Future retail has officially stepped amidst the ongoing tensions in court.
Amazon is also facing probing over labor practices due to the collapse of a warehouse in Illinois which turned out to be fatal.
The banking captain JP Morgan Chase has struck a deal with the company for a multi-year extension of prime rewards.
Amazon has had a union vote in Alabama which has turned out to be quite dramatic. It has resulted in a repeat vote which was lost in Alabama state but has a strong lead in New York.
Current Position of Amazon
Amazon is an enormous multinational with an unbelievable market capitalization of $1.6 trillion. It has vertically integrated to become an unbeaten player in the industry. Through its chain, Amazon has a foot in virtually every industry.
It owns subsidiaries like Zoox, Kuiper systems, Amazon labs 126, Ring, Twitch, Audible, IMDb, Whole foods market, and Amazon Prime video among others.
Amazon has delineated a clear path to conquer the high streets through technological advancement and cost-cutting.
The company, however, faces one big problem at the moment and that is its valuation because it’s disconnected from its current state.
The stock splits are done to increase the float of shares thus diluting the ownership of early investors. This causes a lower nominal price of the stock and increases its liquidity in the market.
This drives up the share price as more capital flows into the stock but it discourages investors.
Amazon’s high value is based solely on its growth which has been remarkable over the years. Amazon has the challenge to keep growing to attract capital and cover the low metrics.
If Amazon were to cease growing it would mean trouble. This stems from the fact that it has a low free cash flow growth, low return on equity, high P/E ratio, and high long-term liability.
Amazon Stock Price
As of the time of this writing (01 April 2022), $AMZN is trading at $3309 up by +1.52%. It is trading at unprecedented levels this year.
We are in the biggest stock market hype in history; hence these prices are to be expected. Amazon has traded at a day range of $3247- $3285.
The stock was at a 52-week high of $3777 and a 52-week low of $2671. The volume of shares traded currently sits at 1.03M.
Amazon 20 to 1 stock split will increase their overall shares. This will hopefully drive more people into investing in the stock.
The stock return is really low at the moment. The stock is trading overly above its fair value which is estimated at a high of $2636 and a low of $786.
(See Amazon Stock Chart at the end of this article)
The stock price has experienced massive volatility over the year. It has been one of the best-performing stocks in terms of growth. It is up by +266% in the past five years.
Amazon was at an all-time high of $3731 last year in 2021. Amazon is currently trading just slightly below this price.
Amazon is down by -0.86% in the past week. This is due to the unsteady market witnessed with tech stocks, being all green in one day and all red on the next.
Amazon is up by +7.57% in the past month and +2.55% in the past six months. It is up by +1.38% year-on-year.
The share price is not congruent with the company’s state of condition as it is. It is likely to tumble soon. Last year was their peak due to a great run during the pandemic and afterward.
The lockdown caused Amazon’s delivery to skyrocket and it was one of their best years. High quantitative easing was done to issue stimulus checks also led to asset inflation in the market.
The company’s growth is astounding but the price is way too expensive. The high prices were also accumulated just recently in a rowdy bull market.
It is therefore not rational to get in at this point, all though other experts might say otherwise believing it will rise infinitely, overestimating the market growth capacity,
Sentiment on Amazon
Amazon is a tough complex play at the moment. The shift in the cloud has caught the attention of some portfolio managers and they believe there is a great opportunity in this powerful trend
Amazon is the leader in cloud services in the world and has grown by 40% over the year. This one sector alone has been argued to support all of Amazon as a whole.
Amazon is bigger in the e-commerce space but draws nothing substantial from the business. Amazon has undercut its prices so low in the space to beat the competition that it is making losses.
President and founder Jeff Bezos has said they do not mind losing in the short-term to dominate the market and possibly gain in the future.
Earnings and revenue growth are impressive for the company but at the moment it’s a value trap. Even proponents of the stock agree it should shed off some weight before they go in.
Profits for Amazon
Amazon is a stunningly profitable company. Profits especially surged with the pandemic up to a staggering 220% in 2020.
Amazon announced its 2021 quarterly results last month on 03 February 2022. Revenue increased by +9.44% over the year recorded at $137.41B.
The net income was $14.32B, an uptick of +98%. The net profit margin was at a solid 10.42% rising by +81% year-on-year.
Operating income went down by -49%, recorded at $3.46B for the year. The net change in cash also went down by -48%, valued at $6.30B.
Amazon’s cash and equivalents significantly decreased by -14% estimated at $36.22B. the reason for such low cash and profit margins is the company’s active strategy reinvest.
It has dedicated a large pool of capital that it receives to expanding its activities. They have been bullish on acquisitions and repurchasing their stock. They have scheduled a $10B buyback program for their shares this year. This is a good move by the company to ensure growth.
Future of Amazon
Amazon is appealing at the moment. They have been phenomenal in growth over the years and they need to keep this up.
It has ensured that it evolves in the best way to hedge against the risk of going out of business. The company however needs to be more proactive in ensuring they maintain a firm understanding of their investments.
One such case where ignorance proved to be costly was the purchase of the EV automaker Rivian which is down by a mile from its IPO.
Amazon’s CEO has assured us that they will keep growing and tapping new frontiers. He said, “If there’s a customer experience that, if we fixed it, could be a large, meaningful business for the company, we will pursue it. Even if it has very little to do with our existing businesses”.
Overall verdict on Amazon
Amazon is doing great and will be around for a long time.
It is a strong buy based on moving averages and oscillators are neutral. It looks bearish short-term and bullish long-term.
It is an overall buy when it gets to a fair price.
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Amazon Stock Price Chart:
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