The Motley Fool

As the Amazon share price slumps, I’d still buy the stock

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Amazon
Image source: Amazon

The Amazon (NASDAQ: AMZN) share price has slumped in value over the past few weeks. Since hitting an all-time high at the beginning of July of $3,719, the stock has fallen 13%. Over the past 12 months, shares in the technology giant have added just 4%. 

Despite this performance, I am incredibly excited about the company’s potential. That is why I would buy the stock for my portfolio and look past near-term headwinds. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Diversified business model

Throughout the coronavirus crisis, consumers have flocked to Amazon’s offering. The company’s heavy investments in technology have more than paid off in the pandemic, as competitors have struggled to catch up. 

Unfortunately for the group, this has started to change. Competitors have been investing more money in their e-commerce divisions, and at the same time, bricks-and-mortar stores have reopened so consumers have been able to go back out and shop again. 

It seems to me that investors have been spending too much time concentrating on the negative impacts of the above factors on the Amazon share price.

The fact of the matter is, Amazon’s retail business is only part of the technology giant’s operations. The group’s cloud computing and marketing divisions are far more profitable.

Alongside these divisions, the most valuable part of the group is Amazon Prime. Subscribing to this service gives consumers access to a range of products, including streaming services and free delivery. 

By charging them an annual Prime fee, Amazon can subsidise the low profit margins in its retail business. Increasing Prime fees is one way the group could quickly increase earnings. Indeed, at just £7.99 a month, the product is still relatively inexpensive, considering the value consumers receive.

Amazon share price outlook

Considering all of the above, I think the long term outlook for the company is incredibly encouraging. The group has a relatively sticky customer base that uses Prime, and it is hoovering up money with its cloud computing and advertising businesses.

In the second quarter of 2021, the group’s Amazon Web Services revenue jumped 37% to $14.8bn

That being said, there are some significant risks and challenges that could continue to hang over the Amazon share price. Policymakers are working towards a global digital tax framework, which could increase the company’s tax liabilities. 

As I noted above, competitors are also quickly learning from Amazon’s success in the e-commerce sector, which will undoubtedly lead to increasing competition as we advance. 

Finally, rising wage costs could eat into the group’s bottom line. 

Yet even after taking these challenges into account, I think the Amazon share price looks cheap compared to its growth potential. I think the business can continue to grow its core businesses over the next few years, which should drive revenue and earnings growth. As such, I would buy the stock for my portfolio today. 

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.