Amazon and Tesla have both faced difficult economic landscapes over the past year or so, and both of their stocks have reflected this to some extent. With share prices dropping in recent months, however, many investors may view the low buy-in prices on Amazon and Tesla’s shares as an opportunity for future growth, as detailed by one analyst in recent weeks.
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Above: Tesla and Amazon's apps on smartphones. (Images: James Yarema and Christian Wiediger / Unsplash).
The Motley Fool’s Keith Speights called Tesla and Amazon stocks “innovative, game-changing and fortune-making” in a recent analysis comparing the two companies. The evaluation looks at problems faced by each company’s stock, such as how their shares both dropped significantly over much of the past year, along with what makes them competitive options for investors looking forward.
Amazon’s revenue growth has been slowing, according to Speights, and falling profits have put a damper on free cash flow. The company’s economic concerns and overall inflationary pressures have been acknowledged by Amazon as reasons for slowing sales growth. Additionally, increased spending has contributed to profit decline, with Amazon’s operating expenses reaching as much as 14 percent in the first three quarters of 2022.
Similarly, Tesla faces less-than-favorable economic headwinds, and increased competition from automakers ramping up electric vehicle production. Speights also notes Tesla’s price cuts as a potential concern alongside investor disappointment in Q4 production and delivery numbers. Despite these and other factors, the automaker isn’t exactly struggling to make a profit.
“Tesla is more profitable than ever, posting earnings of $3.3 billion in the third quarter of 2022.” Speights writes. “Despite the latest disappointing delivery numbers, the company still expects to increase deliveries and revenue production at a compound annual growth rate of at least 50% over the long term.”
Amazon may face reduced inflationary pressures in 2023, and e-commerce still stands to grow in years ahead, capturing just 14.8 percent of total retail sales in the third quarter of 2022 (via U.S. Census Data). The company’s Amazon Web Services (AWS) also remains the current leader in the cloud hosting market.
The EV market as a whole is expected to grow exponentially in the next several years, and Speights points out Tesla’s dominance in the emerging sector — in no small part due to its Supercharger network being the largest and most reliable charging network thus far.
“The market for EVs should expand significantly over the next decade and beyond,” Speights added. “While Tesla will face more competition, the company has a key competitive advantage with its network of supercharging stations.”
Ultimately, Speights names Amazon the better pick by a narrow margin, largely due to estimated cost reductions in 2023 and expectations for Tesla’s profit margins to decline. Still, it’s hard to deny the growing EV industry set to skyrocket in the coming years. He also says there’s a lot to like about both stocks, though it’s tough to say what each company’s shares will look like in the next several months and years.
Source: The Motley Fool / U.S. Census Data
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