Pullback and Possible Split Make Amazon Extremely Attractive

Tech stocks suffered a massive selloff in September, leading to renewed interest in some of the biggest tech juggernauts, including, but not limited to, Amazon (NASDAQ:AMZN). Hard to believe that Jeff Bezos’ trillion-dollar conglomerate could be considered cheap. But the fact that AMZN stock is approximately 12% shy of its 52-week high will entice most investors. Considering the name involved here is Amazon.

Walmart's Robot Is Only a Minor Threat to Amazon Stock
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Plus, Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL) recently had respective stock splits. It’s not a given, but Amazon appears as the most likely candidate to move in that direction, next. Although not an elixir for stock prices, recent splits have led to steep gains in share prices for the companies involved. As a result, if the bulls are correct, this could be the shot in the arm AMZN stock needs. It also means that you should buy shares right now to take advantage of the possible uptick.

Apart from the stock split, the usual positive beats in Amazon’s performance should keep you interested. Sales are up, and the company is now looking to roll out drone tech for deliveries extensively. That will reduce the headcount for Amazon prospectively and lead to a better bottom line.

Any way you slice it, AMZN stock is looking pretty good right now.

AMZN Stock Will Rally on Possible Stock Split

Stock splits are back in vogue this year, with Apple and Tesla leading the charge. Splits don’t have anything to do with fundamentals. However, they do end up attracting higher investor interest. Considering Amazon last did a stock split two decades ago, it seems pretty likely that it will go ahead and do one this year. After all, share prices need a bit of a lift after the tech sell-off.

There are a couple of other factors in play here as well. Firstly, the stock split will help the company gain admittance to the prestigious Dow Jones Industrial Average – the world’s most famous stock market index. It does sound surprising that one of the world’s wealthiest companies is not on the Dow, but there you have it.

The anomaly is because the 122-year-old index is price-weighted, the influence of each company on there is based on their per-share value. A company like Amazon will end up dominating the other members just by being, well, Amazon. That’s why unless there is a stock split, it doesn’t look like the tech giant will have its day in the sun on the Dow, a further incentive for the stock split.

Business as Usual

At this point, its no use talking up Amazon’s prowess in terms of financial metrics. Every quarter usually beats analyst expectations and is better than the one before it. The second quarter was no different, with net sales increasing by 40% to $88.9 billion from the year-ago figure of $63.4 billion. Meanwhile, free-cash-flow, a metric that Bezos values considerably, jumped by 27.6% year on year to finish at $31.85 billion for the quarter.

Amazon Web Services or AWS, Amazon’s cloud computing service, keeps adding new customers, with HSBC (NYSE:HSBC) and Formula 1 Racing among the new entrants to its roster. The only point of concern that Amazon might have is Walmart (NYSE:WMT) recently launching its $98/year subscription “Plus” service. It will serve as a direct competitor to Amazon Prime, but time will tell if it’s able to make inroads into Amazon’s established markets.

Drone Alert

Back in August, Amazon got the go-ahead for its drone delivery system from federal regulators. That makes it the third significant entity after UPS (NYSE:UPS) and Google parent  Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) to get the nod. A potential game-changer, drone tech will be a significant contributor to the bottom line for Amazon in the foreseeable future.

Drones, unlike humans, do not get sick, take leave or suffer from motivational issues. You could go ahead and use them around the clock without fail. Also, personnel costs contribute significantly to aggregate expenses for Amazon. Shipping and operating the fulfillment centers represented 30% of total operating costs last year. I am not saying that these costs will disappear overnight. But a gradual shift to drones will help in this area. Personnel, warehouse and delivery costs are a significant segment of the expenses for Amazon, one they would gladly want to reduce. Drones, an environmentally friendly option, will help greatly in this regard.

My Final Word on AMZN Stock

You never waste column space when talking about AMZN stock. Whenever you broach the topic, there seems to be an infinite number of ways Amazon is revolutionizing how we do business. Whether it is the drone deliveries, AWS, Alexa, or its e-commerce platform, there is always something that the company is working on.

That’s why it’s not surprising Amazon has become the preeminent company in the retail space. With such a strong supply line, it will continue to gobble up anyone that comes in front of it. Therefore, the recent pullback makes AMZN stock even more enticing to any retail investor out there.

AMZN stock is a firm “buy”; snap it up before it makes up lost ground.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


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