Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon stock has fallen more than 30% over the past 12 months. Shares of the international online commerce platform briefly rebounded in 2023 and then lost significantly after weaker-than-analysts-expected earnings.
Nonetheless, Amazon's long-term thesis remains strong, and now could be a great time to buy the stock during the downturn. There are several reasons for this.
- Macroeconomic conditions may improve soon
Although it is too early to tell if the Nasdaq bear market is over, there seems to be a glimmer of light at the end of the tunnel. Although interest rates are currently high, inflation is not coming down. This may encourage the Federal Reserve to ease its restrictive monetary policy without driving the U.S. economy into recession, a scenario often referred to as a "soft landing."
This is a huge green light for Amazon and other growth-oriented stocks, as Fed policy affects investors' willingness to pay premiums on their future earnings and cash flows. And a recession would be bad news from an operational standpoint. The market is happy to see that both of these factors may not be as severe as previously expected.
- Amazon is a cyclical company
Although Amazon's stock price appears to be benefiting from favorable market factors, the company's recent results for the fourth quarter ended Dec. 31, 2022, leave much to be desired. Net sales rose 9% year over year to $149.2 billion thanks to growth in North American e-commerce and cloud computing, which helped offset a significant decline in international e-commerce. Net income fell 98% from $14.3 billion to just $300 million.
That's a very troubling result. But investors should look at the situation in the right context. Amazon's business is cyclical, which means it is very sensitive to changes in macroeconomic conditions -- including inflation and rising interest rates, which can hurt consumer confidence.
And while the global economy may weather the recession, many companies are choosing to behave more cautiously, postponing enterprise cloud migrations or moving to cheaper service levels, resulting in slower Amazon Web Services (AWS) revenue growth.
In the long term, e-commerce and cloud computing remain growth opportunities for Amazon. Executives believe public and private enterprises are still in the early stages of moving their computing needs to the cloud.
And in 2023, Amazon plans to bring its e-commerce platform to new markets in Latin America and Africa. The company's scale allows it to achieve cost and network efficiencies to stay ahead of competitors in the industry.
Amazon stock, with a price-to-earnings ratio of 68, doesn't look particularly cheap compared to the S&P 500 average of 22. But investors should keep in mind that, as a cyclical company, its current earnings are unusually low and do not necessarily reflect its long-term earnings potential.
Despite its near-term problems, Amazon remains one of the best bets for long-term e-commerce and cloud computing, and for patient investors, the stock still looks like a buy.
As long as the price is above 95.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 101.35
- Take Profit 1: 113.00
- Take Profit 2: 122.00
Alternative scenario:
If the level of 95.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 95.00
- Take Profit 1: 90.00
- Take Profit 2: 85.00
