If Amazon (NASDAQ:AMZN) wasn’t Amazon, investors probably wouldn’t have much patience with it. While AMZN stock is in the running for one of the most transformative investments of our time, investors haven’t given that too much thought recently. Not when the company’s management is busy spending billions on revamping its infrastructure.
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Because of AMZN’s focus on dominating the markets of tomorrow and not just those of today, the Amazon stock price has grown rather expensive. For instance, the shares’ trailing price-earnings ratio is more than 79. That’s a pretty high number, especially compared to other tech giants like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Currently, both sport trailing P/E ratios of less than 31.
Adding to the woes of AMZN stock, Amazon recently delivered uncharacteristically disappointing earnings . Against analysts’ average earnings per share estimate of $4.62, the e-commerce giant mustered only $4.23. While its top line beat the average outlook ($70 billion versus $68.8 billion), its cloud revenue came in slightly below the average estimate.
But the biggest negative surprise was the company’s Q4 revenue guidance. While analysts, on average, were previously targeting $87.4 billion, Amazon instead guided between $80 billion and $86.5 billion. Obviously, this was a shocker because, let’s face it: Amazon is so popular with consumers.
Furthermore, analysts anticipated that the e-commerce firm’s infrastructure upgrades would spark higher demand. However, the company’s guidance is sending the opposite message. Thus, the Amazon stock price tumbled badly immediately after the results were announced.
On the surface, this situation looks ugly for AMZN stock. Does that mean investors should abandon ship while they can? Let’s take a closer look at the matter.
A Societal Shift Is the True Catalyst for AMZN Stock
One of the beautiful aspects of investing in Amazon stock is the diversity of its business. Inarguably, the company is most known for its e-commerce platform. However, AMZN is also one of the world’s most disruptive organizations.
From retail to cloud computing, healthcare, and even hardware, Amazon isn’t just a competitor; it’s a bona fide elite contender, bringing joy to stakeholders and misery to anyone in the company’s way. But the biggest reason to buy Amazon stock remains its tried-and-true e-commerce business.
Of course, the entire analyst community has covered this angle. But at a time when critics are blasting AMZN stock for not providing the goods, a refresher is in order.
e-commerce’s share of the total retail sales pie continues to grow. Interestingly, online sales continued to increase during the Great Recession years. Right now, e-commerce is just under 11% of total retail sales.
I’m not breaking any ground by saying that percentage is guaranteed to increase.
According to a Pew Research Center study in December 2016, approximately 80% of Americans are online shoppers. Not only that, but 15% buy something online on a weekly basis. With Amazon.com clearly the destination of choice for e-commerce, the phenomenon’s growth bodes incredibly well for the Amazon stock price over the long haul.
Moreover, Americans have changed their consumption behaviors. Thanks to increasing digitalization, about 40% indicate that they almost always peruse online reviews before buying something new. Many do so while they’re in a physical retail store.
All of these factors benefit AMZN stock. But the company’s real payday will come when consumers do not even consider brick-and-mortar stores anymore; that’s why AMZN is making billion-dollar bets on free one-day deliveries and similar infrastructure initiatives.
Avoid in the Near Term, Buy in the Long-Term?
If you’ve followed my work over the years, I think you know what’s coming next. This is where I explain that Amazon stock is risky in the nearer term, but in the long-run, its strong fundamentals should enable it to hit a grand slam.
But based on the recent technical performance of AMZN stock, I’m not so sure about the near-term part of my longtime thesis anymore.
Immediately after Amazon delivered its subpar Q3 results, AMZN stock slipped by as much as 9% in after-hours trading. But subsequently, Amazon stock price actually moved up a bit. Even though investors now have every excuse to drop AMZN stock, it’s still holding onto its long-term support just under $1,800.
Ultimately, I believe the markets have prioritized the positives of Amazon stock over its negatives. Therefore, those who are looking for a serious dip in Amazon stock may be disappointed.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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