The Recovery in Amazon Is Exaggerated

InvestorPlace2022-06-16

Amazon(AMZN) stock surges amid its stock split.However, a gloomy outlook persists as key metrics aren't aligned.AMZN is an overvalued asset with growth prospects fading.Amazon(NASDAQ:AMZN)stock has ...

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Comments

Tanyl
2022-06-17
Tanyl
It is the time to buy Amazon
niz
2022-06-17
niz
Agree
TF105
2022-06-17
TF105
[Weak]
InvisibleP
2022-06-17
InvisibleP
Ok
SPOT_ON
2022-06-17
SPOT_ON
Overvalued... sell
Avg123
2022-06-17
Avg123
[Strong]

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Many investors seem over the moon about their gains, and rightly so. However, it’s time to think about matters prospectively. I sincerely doubt that Amazon stock will resume its upward trajectory as we move forward because it possesses clear fault lines.I know many of you might disagree with me but just hear me out. First of all, Amazon’s recent retracement is likely artificial due to a technical price level bounce, which coalesced with its stock split event. Secondly, key metrics suggest that Amazon stock remains overbought. I’m thus exceptionally bearish; here’s why.Stock Split AnalysisAmazon executed its20-for-1 stock split over the weekend in an attempt to make its stock more investable to the retail crowd. Although the split could add some value, it seems as though most of the benefits were already priced in leading up to the event, with AMZN stock rising by more than 12% in the last month.It’s likely that institutional investors were the ones that speculated on the stock split and that actual post-split retail buying won’t suffice. I say this because retail market participation continues to wane, and AMZN’s stock split momentum peaked pre-event.Even if we flip the scenario around and assume that AMZN’s stock split will result in a bullish trend, it’s still unlikely that it would make that big of a difference. According to a Cambridge University published study, the market underreacts to stock splits, which means that the stock split price anomaly remains a folk tale rather than objective theory.Cyclical HeadwindsAlthough it remains open to debate, Amazon’s primary exposure is to the cyclical consumer goods market. The company’s e-commerce platform, which still accounts for roughly 44% of the business’ revenue, is inextricably linked to the real economy. Thus, the bulk of Amazon’s sales will likely fade if the yield curve’s implied interest rates materialize. The intuition here is that a series of increases in the benchmark interest rate would contract the economy, in turn reducing cyclical good spending.Source: GurufocusOn the upside, I see Amazon Web Services (around 16% of its total revenue mix) as a breadwinner due to its secular growth properties. However, AWS is a long-run valuation consideration and won’t significantly affect the stock until it takes up a larger part of AMZN’s total revenue.Relative Valuation ConcernsAmazon stock is overvalued on a relative basis. Firstly, AMZN stock is trading at 1.98x its sales and 15.81x its cash flow, conveying that the stock’s overvalued on both an accrual and a cash basis. Furthermore, AMZN’s price-to-earnings ratio of 47.62x implies that the market overestimates the company’s earnings-per-share capabilities.I don’t see Amazon’s overvalued price multiples justified by growth. Sure, the company holds a strong market position, but its growth is relatively disappointing if it’s considered that AMZN’s earnings-before-interest-and-tax (EBIT) growth is projected at only 13.86% for the next year. In addition, Amazon’s forward diluted earnings-per-share is forecasted to be 84.78% lower than its 5-year average, implying that its growth prospects aren’t bright at all.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9054784237,"gmtCreate":1655428067129,"gmtModify":1676535637145,"author":{"id":"4087109808120260","authorId":"4087109808120260","name":"Tanyl","avatar":"https://static.tigerbbs.com/174329973340cf0f5b68791ee5b08afd","vip":1,"crmLevel":9,"crmLevelSwitch":1,"idStr":"4087109808120260","authorIdStr":"4087109808120260"},"htmlText":"It is the time to buy Amazon&nbsp;","listText":"It is the time to buy Amazon&nbsp;","text":"It is the time to buy Amazon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9054784237","repostId":1169504312,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9054492557,"gmtCreate":1655422085479,"gmtModify":1676535633866,"author":{"id":"4112423358275972","authorId":"4112423358275972","name":"niz","avatar":"https://community-static.tradeup.com/news/568f2df1daaf5057a16ef306fb5af88f","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4112423358275972","authorIdStr":"4112423358275972"},"htmlText":"Agree","listText":"Agree","text":"Agree","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9054492557","repostId":1169504312,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9054406710,"gmtCreate":1655421559330,"gmtModify":1676535633636,"author":{"id":"4103845292937490","authorId":"4103845292937490","name":"TF105","avatar":"https://community-static.tradeup.com/news/970ff314f46a910a166b2a93d12f115a","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":2,"crmLevelSwitch":0,"idStr":"4103845292937490","authorIdStr":"4103845292937490"},"htmlText":"[Weak]&nbsp;","listText":"[Weak]&nbsp;","text":"[Weak]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9054406710","repostId":1169504312,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9054581650,"gmtCreate":1655416943270,"gmtModify":1676535632140,"author":{"id":"3585470994468822","authorId":"3585470994468822","name":"InvisibleP","avatar":"https://static.itradeup.com/news/13510d2c4ac014319931fb49792d17eb","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3585470994468822","authorIdStr":"3585470994468822"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9054581650","repostId":1169504312,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9054511026,"gmtCreate":1655415492966,"gmtModify":1676535631740,"author":{"id":"3582922989777578","authorId":"3582922989777578","name":"SPOT_ON","avatar":"https://static.tigerbbs.com/080f029371339d9db26930961de6adb1","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":4,"crmLevelSwitch":1,"idStr":"3582922989777578","authorIdStr":"3582922989777578"},"htmlText":"Overvalued... sell","listText":"Overvalued... sell","text":"Overvalued... 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