Mammoth of e-commerce and technology amazon (NASDAQ:AMZN) has captivated investors for decades. However, after rising more than 50% in the last year amid the excitement around the technology sector, many will wonder how far it can go. I want to take a closer look at this market giant and determine if there may be some reasons for profit in the short term.
The numbers
When a company sees a rally greater than 50%, I always start my analysis with a discounted cash flow calculation. This valuation method estimates a company's future cash flows and can indicate whether the market is getting carried away or whether there is still a good chance for further growth in the future. Surprisingly, based on this calculation, the current share price may be up to 41% undervalued.
Of course, this is not a guarantee. With so many different sources of income, including cloud computing, investors often struggle to establish the best way to value such complex companies.
However, the price-to-earnings (P/E) ratio, which compares a company's share price to its earnings per share (EPS), offers a clearer picture. Currently, the company's P/E stands at around 56 times, significantly higher than the industry average of 34 times. This could indicate that the company's shares are trading at a premium compared to those of its rivals. After such a prolonged rally, a stock price that many consider too high could quickly lead to a sell-off and significant decline.
Limited potential?
amazon's aggressive expansion into e-commerce is no match for the heady days of the past. Compared to this year, revenue growth is expected to slow by 20% over the next year. Some analysts argue that the company faces increasing competition in the e-commerce space, especially from TikTok. shop, which has been growing at an astonishing rate. But to me, impressive performance in other areas of the business, such as AWS, is more than a hedge against any potential retail slowdown.
Another factor that I think could be a big driver of the share price is the shift from growth to profitability. The company is now such a giant that expansion does not have to be the priority. Instead, the company can focus on reducing costs, executing efficiently and improving offerings such as Main video.
In general
To me, amazon's stock price still has a great future ahead of it, but it may experience some bumps along the way. The e-commerce business may have already seen its best days, but with so many other services and platforms under the same roof, the company is not far from being the “everything platform” that so many companies are seeking to become.
As with many companies in the technology sector, the valuation may be high, but I think long-term investors still have a solid future with this one. I will add shares at the next opportunity.
