Hold the Line. It’s Not Time to Bottom Fish AMZN Stock.
Like many of its FAANG peers, Amazon (NASDAQ:AMZN) stock has experienced a post-earnings plunge in recent weeks.
Following the cloud computing and e-commerce giant’s latest quarterly earnings release, AMZN stock has hit multi-year lows.
More or less, the stock has fallen back to price levels last seen at the start of the Covid-19 pandemic. Considering this against the fact that Amazon has become a much larger, more profitable enterprise during this timeframe, you may think this recent sell-off is a market overreaction and a signal to make AMZN a buy.
However, while there is a path for this tech giant to make an eventual recovery, don’t expect a comeback to occur in the immediate future. In fact, shares may have further room to fall before a comeback takes shape. Let’s dive in, and see why you may not want to rush into a position.
Why AMZN Stock has Given Back its Gains
On Oct. 27, Amazon reported results for the quarter ending Sept. 30. Revenue and earnings per share of $127.1 billion and 28 cents, respectively, were in line with estimates. However, the numbers for Amazon’s AWS cloud computing fell short of expectations.
Furthermore, management provided investors with a downbeat guidance update. The company expects revenue of between $140 and $148 billion this quarter. That was below Wall Street’s forecasts, which called for around $155 billion in revenue. As InvestorPlace’s William White reported on Oct. 28, AMZN stock fell over 12% immediately after this earnings release.
Shares have continued to drop. Atop the numerous pullbacks so far this year, as macro factors like inflation, interest rates, and slowing economic growth have weighed on tech stocks, Amazon’s stock price is now back to where it was in the spring of 2020, right when pandemic tailwinds for e-commerce and cloud services sent it on an incredible run.
Unfortunately, while this on the surface may seem like a sign that AMZN is bottoming out, you shouldn’t jump to that conclusion. Much like the situation with one of its fellow FAANG components, macro and company-specific factors could continue to weigh on it.
A Slow Road to Recovery
Currently trading for less than half of its all-time high AMZN stock can make a recovery, in time. As this company keeps maturing and begins to take its foot off the growth pedal, earnings could ultimately rise to a point that justifies a return to the lofty price levels reached in 2021.
The problem is that it’s unclear on what timeframe Amazon shares will make this recovery. With the factors that sank the stock in the first place still playing out, it’s going to be difficult for AMZN to reverse its trajectory anytime soon. Not only that, more disappointment may lie ahead.
Despite industry projections calling for “solid” holiday retail sales, CFO Brian Olsavsky has stated the company is unsure whether this will pan out.
Results for Amazon’s e-commerce segment this quarter may just well underwhelm. If the U.S. economy enters a recession in 2023, the impact on enterprise IT spending (i.e. demand for cloud services) could fade. The performance of Amazon’s AWS segment could continue to deteriorate as a result.
Instead of merely languishing at or near current price levels, shares could hit new lows, as the factors behind its price decline thus far continue to affect its operating performance.
Bottom Line on AMZN Stock
Admittedly, Amazon isn’t the FAANG stock with the most issues right now. Facebook parent Meta Platforms (NASDAQ:META) is more deserving of that “honor.” Meta right now is dealing not only with industry-wide headwinds like softening digital ad demand but also from the fallout of its “all-in” wager on the metaverse.
Having said that, AMZN is anything but a screaming buy at present. Currently trading for 82.5 times earnings, it may have more to fall in today’s more valuation-conscious market environment.
There’s also high uncertainty regarding how much worse its operating performance will get in the near-term, and how long it will take for shares to recover in the long term.
It may be worth reassessing the situation if it falls to lower prices, but for now, hold off on AMZN stock.
AMZN stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier held AMZN, GOOG and META. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
