When I think of Amazon (NASDAQ: AMZN), I think of the most successful e-commerce platform in the world and the wealthiest man on earth, Jeff Bezos. So when I heard that the Amazon share price has become the most undervalued that its been in years, it caught my attention.
The price has dropped 8% in the past few days and I am wondering whether now is the right time to buy. So should I jump on the e-commerce giant’s falling share price or wait for an even better entry point?
Amazon’s Q2 report
Amazon’s underperforming second quarter is what has been causing this disruption. Evidently, Amazon has fallen victim to a post-Covid hangover with its earnings falling by more than 7.5% and missing its second-quarter revenue expectations. Its results report also gave an estimation of sales growth of 10% to 16% for Q3. This is a downgrade from previous Amazon trading reports.
On top of this, Amazon Prime purchases have hit their slowest growth rate in four quarters.
I have to mention that these results are in no way catastrophic for Amazon, but they have tempered the mood of bullish investors. While revenue was $2bn below estimates, the company still reported 27% year-on-year growth.
Is now the time to invest?
As mentioned above, the Amazon share price has dropped massively in the past week and has fallen into the red zone. Although I am hesitant to invest right now, I do think there is an opportunity for me to buy shares in the near future.
Despite the underwhelming Q2 report, Amazon is still showing positive financial indicators. Net income rose by 50% to $7.8bn with $15.12 per diluted share, and overall revenue increased to $113.08 billion.
I find it hard to imagine that the falling share price will last forever, as Amazon is one of the biggest companies in the world today. I see the drop as just some pull-back after bullish investors overestimated the post-Covid performance of Amazon.
Further, the online shopping industry is set to grow by 20% in the next decade which is great news for Amazon.
How I plan to place my investment
The Amazon share price is $3,354.72 as I write. If I take a step back for a second, I can see that Amazon has been trading in a $500 bracket between $3,000 and $3,500 for nearly a year now. The share failed to break through the $3,500 mark back in June, despite a huge push from investors.
My plan is to wait for the price to continue falling towards the $3,000 mark. I believe a price at this threshold will be its lowest. From there I will decide to add Amazon to my portfolio. In my opinion, this is the most secure way to place my investment.
Despite the disappointment from the Q2 report and current drop in the Amazon share price, I am convinced that eventually the company will return to its usual winning ways and the share price will continue in a positive trajectory.
John Town holds no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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.