Skip to main content

Amazon Stock: Can 2022 Be A Year Of Recovery?

AMZN delivered dismal gains to investors in 2021. The Amazon Maven looks at history to understand if 2022 might be a much better year for the company and stock.

Amazon stock  (AMZN) - Get Amazon.com, Inc. Report disappointed investors in 2021 with unimpressive gains of only around 2%. Some might be feeling uneasy about lack of share price momentum as 2022 rolls in, especially after a year of supply chain disruptions and a slowdown in the growth pace of the e-commerce business.

The Amazon Maven digs into the historical record, going all the way back to Amazon’s 1997 IPO, and asks the question: can 2022 be a year of recovery for AMZN stock?

Figure 1: Amazon headquarters in Seattle, WA.

Figure 1: Amazon headquarters in Seattle, WA.

(Read more from the Amazon Maven: Amazon Stock: Should You Buy It in January?)

AMZN: erratic price behavior

The chart below shows the distribution of annual returns in Amazon shares since the late 1990s. The first observation is that stock price performance has been quite erratic over the years. Shares climbed nearly 1,000% in 1998 and sank as far as 80% in 2000.

Within this context, it is hard to call 2021 returns of 2% either usual or atypical. What is known is that they fell well below the historical median of 31% seen in the past 25 years.

Historically, Amazon’s poor relative performance in one year has very often preceded an immediate spike. For example, the 16% dip of 2006 happened right before the 135% rally of 2007. The 22% decline of 2014 was followed by a 118% run in 2015. A flattish 2011 foretold two years of returns above 40% each.

Figure 2: Distribution of AMZN annual returns since IPO.

Figure 2: Distribution of AMZN annual returns since IPO.

(Read more from Amazon Maven: Amazon Stock: Why This Chip Manufacturer's Results Are a Good Omen)

Look beyond the year-by-year performance, and Amazon stock begins to show a pattern. The chart below depicting the three-year return distribution is much better concentrated around the median of 30% annualized. That is: give it enough time, at least 36 months, and Amazon stock will usually offer solid, double-digit annualized gains to its investors.

Interestingly, Amazon’s three-year performance between 2019 and 2021 has been perfectly aligned with the long-term median. Therefore, while dismal gains last year could lead some to believe that share price will rebound in the new year, they may have merely represented a “return to normal” after the sky-high returns seen in 2020.

Figure 3: Distribution of AMZN annual 3-year returns since IPO.

Figure 3: Distribution of AMZN annual 3-year returns since IPO.

Amazon Maven’s take

From a share price perspective, it is hard to tell for sure what the dismal 2021 performance might mean for Amazon stock in the new year. While malaise is often followed by a rally, the three-year gains in AMZN have been aligned with historical averages. Those waiting for a rebound in 2022 based on stock price action alone could be disappointed.

However, the business fundamentals should not be ignored. We have previously explained that e-commerce in 2022 will likely not recover to 2020 levels, but last year’s holiday season showed promise. Amazon is likely to perform better than its peers, as the company has been investing heavily in online retail infrastructure.

Add to the above a healthy cloud business and a 2025 P/E multiple of 23 times that seems very reasonable, and we can see a strong case for Amazon stock doing much better in 2022 than it did last year.

Twitter speaks

Amazon stock returned only about 2% in 2021, but a much better 76% in 2020 and 23% in 2019. What gains or losses do you expect of AMZN in the new year?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)