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How Amazon Stock Is Slowly Evolving Into a Value Stock

Over the last three months, through the heart of the novel coronavirus pandemic Christmas, Amazon (NASDAQ:AMZN) stock is down about 8%.


Source: Sundry Photography /

It points to a natural evolution. At some point growth becomes value.

At its early Jan. 14 price of about $3,155, Amazon was worth $1.58 trillion. That’s 92.5 times last year’s earnings. It’s also about 5 times the company’s expected sales volume of $321 billion.

Such a level is ridiculous for a retailer. Most sell at a discount to sales. But it’s dirt cheap for a tech stock. Oracle (NYSE:ORCL) sells for 5 times sales and Microsoft (NASDAQ:MSFT) 11 times.

What’s Going On?

Amazon is anticipated to report earnings within the next 3 weeks. Analysts are expecting a super-sized Christmas, with earnings of $7.01 per share and sales of $112.53 billion. Compare that to last Christmas when sales were $87.43 billion. At its current rate of growth Amazon could be bigger than Walmart (NYSE:WMT) in 2022.

Analysts haven’t fallen out of love. Tipranks has 32 analysts following it, and 31 say buy it.  Their one-year price target is $3,811, up 21% from where it is now. If they’re right, the company’s value next year will be $1.9 trillion.

Amazon stock is getting less love, in part, because of bad press. Connecticut recently launched an investigation of its Kindle books business. The company made a controversial decision to cut off Parler, a right-wing social network.

While Amazon likes to ding Walmart, saying its starting salaries are above the minimum wage, they’re below the average for the logistics industry. Some workers are talking union.

Former vice president Tim Bray, who left last May, has said the company’s culture has a “vein of toxicity” running through it. He wants the store separated from the cloud. I do, too, because it would unlock enormous shareholder value.

Social critics point out that Bezos and the Walmart heirs saw their fortunes grow $116 billion during the pandemic, 35 times the total hazard pay given workers.

Perhaps most important, there are just a lot of smaller, shinier objects for speculators to play with. IPOs, SPACs, bitcoin and fintech plays like Affirm Holdings (NASDAQ:AFRM), are delivering huge gains. Amazon looks tired in comparison.

Still Performing

Despite this, Amazon is still performing.

Amazon is now the country’s preferred grocer, beating even Texas’ H.E.B. Its Zoox unit has unveiled an unmanned delivery truck. It plans to spend $2 billion building affordable housing near its offices, another potential profit center. Its third party re-sellers are now being rolled-up into large companies of their own.

Amazon is becoming a major presence in entertainment. It bought Wondery to get into podcasting. It plans to bid for rights to Italy’s Serie A. It’s producing a prequel series to Lord of the Rings.

Amazon’s ad business should gain more share than any other player in the next two years. One analyst says it could be three times bigger than Tesla (NASDAQ:TSLA) is now in five years. For those scoring at home that would mean revenues of over $80 billion, which is more than Facebook (NASDAQ:FB).

The Bottom Line on Amazon Stock

If growth is a value, Amazon stock still has value.

Our Louis Navellier says Amazon is priced right and it is. What’s happening is a natural rotation, as investors pile in and speculators seek fatter gains.

Some time in the next few years, S&P Global (NYSE:SPGI) will find a way to put Amazon in its Dow Jones Industrial Average. It must, because Amazon is just too big to ignore, and the Dow needs Amazon’s growth to keep rising.

At some point, Amazon might even split the stock and declare a dividend. It might take Bray’s suggestion and split the store out from the cloud. That’s when its evolution into a value stock will be complete.

At the time of publication, Dana owned shares in AMZN and MSFT.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

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