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Although the valuation of Amazon.com (AMZN) has fallen significantly with the other mega-cap technology stocks, it still commands a hefty premium to its peers. Priced at 34 times profits expected over the next 12 months, Amazon has the most expensive valuation among mega-cap technology stocks. Moreover, the valuation for Amazon remains high despite the outlook for slowing growth, with analysts projecting revenue growth of 8% this year for the company, compared with an average of 24% over the past five years.
Some analysts are wary of Amazon’s high valuation. For example, Ingalls & Snyder said it has been selling down its position of Amazon for more than a year due to a slowdown in Amazon Web Services, which has been a main contributor to the company’s sales and profits. Also, CI Roosevelt said, “when we compare Amazon to other large technology companies, there is better value and a better risk-reward proposition than those other companies.”
Despite this year’s +17% rally in shares of Amazon, it is still down -47% from its 2021 all-time high. That is weaker than Apple’s (AAPL) 13% drop from its record, as well as Microsoft’s (MSFT) 21% decline and Alphabet’s (GOOGL) 31% drop from their all-time highs. However, despite the stock’s underperformance, most analysts remain bullish on Amazon. It has the highest percentage of buy ratings among mega-cap technology stocks at 93%, and the average of price targets implies a gain of 36% in the stock’s share price from current levels.
Amazon has been shedding workers as it tries to lower costs and increase profitability. The company announced an additional 9,000 layoffs this week, adding to cuts that were already the largest round of job cuts in the company’s history. Most of the job cuts would occur in the coming weeks and primarily affect Amazon Web Services, human resources, advertising, and the Twitch live streaming service groups. Amazon CEO Jasy said, “given the uncertain economy in which we reside, and the uncertainty that exits in the near future, we have chosen to be more streamlined in our costs and headcount.”
JPMorgan Chase said investor sentiment on Amazon is near multi-year lows but believes that the cost cuts implemented by Amazon will be positive for the stock. With the company’s cost reductions in place, JPMorgan Chase expects a surge in free cash flow this year. Also, Ingalls & Snyder said they expect Amazon’s sales growth to re-accelerate, but the diversity of the company’s businesses makes it difficult for investors to assess a fair valuation for the stock.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
