Source: PaxForex Premium Analytics Portal, Fundamental Insight
Macroeconomic factors last year led to a market decline that affected many tech stocks, and Amazon stock fell nearly 50 percent during the year. The company was hit by a significant e-commerce crisis and fluctuations in foreign currencies.
Despite a tough year, Amazon remains a dominant force in the tech industry, ranking fifth in the world by market capitalization at $1.05 trillion. The company may not yet be completely out of the e-commerce world, but its strong position in sectors such as cloud computing is likely to fuel its growth for decades to come.
However, before you add this tech giant to your portfolio, it's a good idea to understand its pros and cons. Here are a few factors you should consider when considering Amazon stock this year.
Amazon stock started to recover in 2023, up 22% year-to-date. On a year-over-year basis, however, the stock is still down 37%, suggesting that there is still plenty of room for growth after the deep drop in 2022.
What's more, Amazon's price-to-sales (P/S) ratio, which measures the company's sales compared to its revenue, makes Amazon stock a bargain compared to its peers. Amazon has the best P/S among tech giants like Microsoft, Apple, and Alphabet.
Amazon stock may have lost steam over the past year, but the company's promising long-term prospects make it an attractive stock to buy, and Wall Street agrees. The company's 12-month average target price of $137.82 is 35% higher than its current price.
Finally, despite the sell-off, Amazon stock has maintained a 49% gain over the past five years and a 674% gain over the past decade. The company has a track record of consistent growth for patient investors, making its recent stock decline an attractive investment in 2023.
Inflation peaked at 9.1% last June, causing some markets to suffer from lower consumer spending. The rate slowed to 6.4% in January and 6.1% in February, but continues to affect businesses in all sectors.
The difficult economic situation hit Amazon's e-commerce business the hardest, with its North American and international segments posting combined operating losses of $10.6 billion in the fiscal year 2022. These unfavorable factors also contributed to Amazon's free cash flow declining to a negative $16.9 billion last year, down 163% from 2020.
Amazon has responded by cutting costs - over the past year, it laid off 27,000 workers, shut down production or closed dozens of warehouses, and phased out projects such as its Amazon Care telemedicine service. And in January, the company took out an $8 billion short-term loan to deal with unforeseen difficulties over the next year.
Despite recent problems, Amazon had about $54 billion in cash and cash equivalents as of Dec. 31, suggesting that the company has the means to overcome temporary obstacles and continue to expand over the long term. In 2023, the company may face new challenges in e-commerce. However, its market dominance is likely to pay off in the coming years as the economy recovers.
The tech giant's e-commerce segments may have suffered significant operating losses in 2022, but Amazon Web Services' (AWS) cloud platform has done more than well. AWS's $22.8 billion operating income accounted for 100 percent of the company's profits for the year.
According to Grand View Research, the cloud market was valued at $484 billion in 2022 and is projected to grow at 14.1% a year through 2030. Meanwhile, Amazon's leading market share of 34% is likely to continue to provide substantial growth for years to come.
Moreover, e-commerce is expected to reach $4.1 trillion in 2023 and reach $6.4 trillion by 2027, growing at an average annual growth rate of 11.5% (according to Statista). Despite recent adversity, Amazon's 37.8% market share in the industry offers tremendous hope for the future.
With excellent long-term prospects and a favorable stock price, Amazon is a screaming buy right now.
As long as the price is above 96.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 103.08
- Take Profit 1: 106.00
- Take Profit 2: 113.00
Alternative scenario:
If the level of 96.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 96.00
- Take Profit 1: 93.00
- Take Profit 2: 90.60
