3 Reasons to Buy Amazon Stock (After the Stock Split)


Year-to-date down 29% Nasdaq Composite index is in a bear market so now is a potentially good time to bet on quality companies trading cheaply. Fresh from its much-anticipated 20-for-1 stock split, Amazon (NASDAQ:AMZN) could fit the bill. Here are three reasons the e-commerce giant seems poised for long-term success.

1. Stocks are relatively cheap

A stock split is when a company divides its stock count by a predetermined amount without changing its market capitalization (the value of all outstanding shares). While stock splits don’t affect fundamentals, they make stocks cheaper and more psychologically attractive to smaller investors. However, Amazon’s June 6 stock split comes at the end of a massive 35% year-to-date decline. As a result, the stock (in this case at least) is now relatively cheaper in both price and valuation.

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With a market cap of $1.2 trillion, Amazon trades at just 2.4 times trailing 12-month sales. And while that number is consistent with the S&P500‘s average of 2.4, it is dramatically lower than his Nasdaq Competitors who have an average price-to-sales ratio of 4.5. Amazon’s price-to-earnings ratio of 55 also looks reasonable given the potential for significant long-term upside in its bottom line.

2. Cloud computing is in full swing

So why does Amazon deserve a healthy net valuation? Note: It’s not the core e-commerce business. While the company’s third-party online marketplace and related services (like Prime subscriptions) currently form the backbone of Amazon’s revenue, its cloud-computing business –– Amazon Web Services (AWS) — looks set to drive earnings growth for decades to come advance .

In the first quarter, Amazon’s net sales rose just 7% year over year to $116.4 billion, driven by weakness in its North American and international e-commerce segments. Both regions may have overexpanded during the pandemic boom and are now facing overstaffing and overcapacity, management says. But Amazon’s cloud computing segment is bucking the trend.

AWS revenue rose 37% to $18.4 billion, with operating income up a massive 57% to $6.5 billion, compared to a $2.8 billion loss in e-commerce -business of the company. While it’s unclear whether Amazon’s cloud business will stay the course, analysts at research firm Redburn are extremely optimistic, predicting that AWS will eventually be worth $3 trillion for that reason alone Advantages in size, cost and technology compared to competitors.

3. Other companies could contribute to the growth

Amazon’s success stems from its ability to focus on synergistic industries to drive growth. First it was an online bookstore, then a general e-commerce marketplace, and finally a diversified technology platform that derives most of its profits from cloud computing. Other companies could be next.

According to Business Insider, Amazon has become the third largest digital advertising company (behind alphabet‘s Google and meta platformsFacebook) with ad revenue of $31 billion in 2021. Amazon is also digging deeper into direct-to-customer streaming $8.5 billion acquisition from MGM Studios. This deal could add thousands of movie titles and TV episodes to its Prime Video content portfolio — and enable it to compete with streaming rivals in unique and original content offerings.

Amazon’s massive size allows the company to unlock value in industries adjacent to its core business and helps lay the foundation for further expansion. Will the company be the next Netflix or google? Who knows. But given his track record across multiple industries, I wouldn’t bet against it.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Meta Platforms, Inc., and Netflix. The Motley Fool has one confidentiality policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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