Amazon stock remains poised for long-term gains despite unfavorable macro environment

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After losing 30% of its value this year, shares of e-commerce giant Amazon.com (NASDAQ:) have become an attractive long-term risk-reward game. AMZN, which completed a 20-to-1 stock split, closed Thursday at $116.13.

The weakness in Amazon shares was, in part, a consequence of the broader risk environment, which is prompting investors to steer clear of tech and other growth names amid an economic backdrop marked by ups, downs and downs. rise.

However, the sell-off reached its tipping point in April, after a worse-than-expected decline. The Seattle-based giant reported sales that grew just 7% in the first quarter of 2022, compared with a 44% expansion in the year-ago period. It was the slowest growth rate of any quarter since the dot-com meltdown in 2001 and the second straight period of single-digit growth.

Analyst Notes

Despite the various macro risks, Wall Street remains optimistic about the company’s outlook, with many analysts citing overwhelmingly positive future prospects.

In a invest.com survey of 56 analysts, 51 rate the stock as a buy; only one company recommends selling it, while four remain neutral. Analysts’ average price target indicates upside potential of over 102%.

AMZN Consensus Estimates

Source: Investing.com

BMO Capital Markets, while reiterating Amazon as its top pick, said in a note this week that the e-commerce giant would continue:

“Leading the secular transition to consumer e-commerce and enterprise cloud services.”

The note adds:

“Labour optimization is underway and we expect fixed cost overcapacity to be absorbed by the holiday season. Once these headwinds clear, we expect AMZN’s position at the helm of the age-old transition to consumer e-commerce and enterprise cloud services will return to the fore. “

The Amazon Web Services division, the company’s cloud unit, currently generates the bulk of its profits and continues to remain in high growth mode. The department reported a 37% increase in sales to $18.4 billion.

In a note last week, Citi included Amazon in a list of stocks that the bank says are oversold and make good long candidates in the market. The list includes names such as Meta Platforms (NASDAQ:) and Applied Materials (NASDAQ:), the world’s largest maker of machinery for manufacturing semiconductors. These companies, according to Citi, are less exposed to macroeconomic factors, such as inflation and rising interest rates.

Stock split

Amazon’s 20-to-1 stock split is another positive that should provide tailwinds in the current uncertain environment. Although this decision does not affect the fundamentals of the company, it could make the price more attractive for retail investors, thus increasing demand.

Eric Sheridan, Amazon analyst at Goldman Sachs, said in a note:

“While they do not change fundamentals, stock splits of this nature have been seen as a shareholder-friendly decision as a lower price per share makes share ownership more accessible to a wider audience. ‘investors.’

Since 1980, companies that have announced stock splits have significantly outperformed the index three, six and 12 months after the initial announcement, according to a Bank of America study conducted by CNBC.com.

According to the bank, the stocks that split have climbed 25% on average over the next 12 months, compared to gains of 9% for the S&P 500.

Conclusion

Amazon stock could remain under pressure in the near term due to earnings uncertainty. But the giant’s long-term investment appeal remains intact, given its dominance in e-commerce and the explosive growth of its cloud business.

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