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Amazon Stock: Here's What To Do After A Bad Start To 2022

Amazon stock, a 2022 top pick for many on Wall Street, continues to struggle. Here is what investors should consider doing next.

Amazon stock  (AMZN) - Get Amazon.com, Inc. Report, my top pick in Big Tech for 2022, has had a rough start to the new year. As I write this paragraph, shares have dipped 4% YTD in a matter of a few days and trade slightly below late January 2021 levels.

Was it a bad idea to bet on the rebound in AMZN shares after a year of unimpressive performance? Below, I help readers think about the investment opportunity in AMZN at the current de-risked price levels.

Figure 1: Amazon Spheres, in Seattle, WA. 

Figure 1: Amazon Spheres, in Seattle, WA. 

(Read more from the Amazon Maven: Amazon Stock: Can 2022 Be A Year Of Recovery?)

The fundamentals look compelling

It is hard to make a strong argument against Amazon’s business. On the cloud infrastructure side, which is the company’s key source of operating income, demand accelerated during the pandemic and barely moderated in 2021.

See chart below on AWS revenue per quarter since 2014 (orange line). Notice that cloud sales continued to rise despite the recent slowdown in the growth pace in North America (blue area) — a catchall segment that includes e-commerce, advertising, streaming, etc.

Figure 2: Amazon's North America and AWS revenues since 2014.

Figure 2: Amazon's North America and AWS revenues since 2014.

On the e-commerce side, Amazon has been facing more challenges. Online store sales increase of only 3% last quarter was an eyesore for a growth company and stock. That alone may be enough to justify AMZN trading 13% below its mid-November share price.

But soon (in Q2 of this year, more precisely), comps will start to ease. Against modest 2020 top-line growth of 13%, online stores are likely to look better — especially if supply chain issues get resolved over the next six months. In that regard, Amazon is likely to perform better than peers, since it is about the most aggressive at investing in fulfillment (see below).

Figure 3: Amazon's capital expenditure, in billions.

Figure 3: Amazon's capital expenditure, in billions.

Better value, but think long term

According to Seeking Alpha, AMZN still trades at a pricey 2022 P/E of 62 times. However, bottom-line growth is still expected to impress in the next several years, pointing at a 2025 P/E of only 22 times that I find appealing for a high-quality company and stock.

Ultimately, I believe that buying AMZN at the current price of a bit over $3,200 per share will prove to be a great idea. But between now and then, investors’ resolve will probably continue to be tested.

As I argued in November of last year, potential Amazon stock investors should look past Q4, and maybe even the first few weeks and months of 2022, if they want to make a profitable bet on the Seattle-based cloud and e-commerce giant today.

Twitter speaks

When AMZN was down only 6% from its peak, a couple of months ago (see below), nearly two-thirds of investors on Twitter that answered our survey seemed confident about buying the dip. Now, Amazon stock is down 13% from the top. Is now an even better time? Stay tuned.

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

(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 Amazon Maven)