This article first appeared on Simply Wall St News.
You either die an e-commerce store or grow old enough to see yourself open a brick-and-mortar operation.
Interestingly, that is happening to Amazon.com, Inc.(NASDAQ: AMZN), but it might not necessarily be a bad thing – given the latest antitrust legislation.
See our latest analysis for Amazon.com.
Latest Developments
While not the first venture outside of the online market (Amazon Go Store, Whole Foods acquisition), Amazon’s plan to open its first physical clothing store sounds like the next step in its expansion. According to Wells Fargo, Amazon surpassed Walmart as the largest clothing retailer in the U.S with US$41b in clothing and shoe sales.
The company plans to leverage its technology to streamline the experience, blending the online and offline shopping experience. The first store should open in Glendale, CA, later this year.
Meanwhile, the Senate panel approved antitrust legislation that forbids the most prominent tech platforms from favoring their own products and services over competitors’. Sen. Chuck Grassley (R-Iowa) reflected on the bill, saying that its goal is to “prevent conduct that stifles competition “and not break up Big Tech.
In the first 3 weeks of 2022, Amazon declined 16%, leading a correction in Nasdaq. Yet, as the earnings approach, some institutions place their faith in the mega-cap stocks to reverse the situation. Dan Ives, managing director of Wedbush Securities, singled out the cloud space as potential “saviors of tech, ” including Amazon’s Web Services (AWS) unit. Such an occurrence wouldn’t be the first as AWS came to rescue in the last quarter, exceeding the expectations by US$630m.
Examining Amazon’s Returns
In his essay “The Superinvestors of Graham-and-Doddsville” Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between its share price and its earnings per share (EPS). Amazon.com achieved compound earnings per share (EPS) growth of 63% per year during five years of share price growth. This EPS growth is higher than the 28% average annual increase in the share price. So it seems the market’s enthusiasm is lagging. Having said that, the market is still optimistic, given the P/E ratio of 55.09.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is, of course, excellent to see how Amazon.com has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Amazon.com’s financial health with this free report on its balance sheet.
A Different Perspective
Amazon.com shareholders are down 16% for the year, leading the decline of the Tech sector. However, remember that even the best stocks will sometimes underperform the market over twelve months. On the bright side, long-term shareholders have made money, with a gain of 28% per year over half a decade. If the fundamental data continues to indicate long-term sustainable growth, the current sell-off could be an opportunity worth considering. However, short-term pain is a real possibility due to the sector’s decline of breadth. It takes just one of the biggest players to slip and drag the entire market to fresh lows.
It’s always interesting to track share price performance over the longer term. But to understand Amazon.com better, we need to consider many other factors. Even so, be aware that Amazon.com is showing 2 warning signs in our investment analysis, and 1 of those is significant…
We will like Amazon.com better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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