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Amazon: It Deserves To Be Crushed Given Its Growth Premium

May 02, 2022 6:44 AM ETAmazon.com, Inc. (AMZN)47 Comments


  • Amazon reported a mixed FQ1 card but issued hugely disappointing guidance. The pandemic tailwinds have turned into significant headwinds.
  • AMZN stock continues to trade at a growth premium, despite its post-earnings sell-off. Moreover, it also lost a critical support level.
  • We urge investors to remain cautious and wait for momentum to return before adding exposure in Amazon stock.
  • As such, we revise our rating on AMZN stock from Buy to Hold.
  • I do much more than just articles at Ultimate Growth Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
Aerial view of Amazon Prime distribution warehouse and fulfilment centre

Teamjackson/iStock Editorial via Getty Images

Investment Thesis

Amazon (NASDAQ:AMZN) reported an underwhelming Q1 card that hugely disappointed investors. But, although we were disappointed, we were not surprised by the weak Q2 guidance. We had highlighted in a pre-earnings article that Amazon stock was

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This article was written by

JR Research profile picture

JR Research is a seasoned investor with a background in economics. He focuses on identifying 3 main things - leading growth companies, emerging market trends, and secular growth opportunities. His approach combines price action with fundamentals investing.

He runs the investing group Ultimate Growth Investing which specializes in identifying high-potential opportunities across various sectors. The group is designed for investors seeking to capitalize on emerging, high-growth opportunities, and investors looking for sustainable growth opportunities at a reasonable price.

Learn more

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (47)

Just have a look at Jeff Bezos tweet from this weekend.. and you understand the stock can drop 70pct..
Insanely overvalued and overowned which makes it even more dangerous. Even 1000 a share would be VERY expensive considering the alternatives. You can get single digit PEs in Europe right now with large dividends and 30pct a year expected growth for next decade
Gary J is Rich on AMZN profile picture

Agree, the time to buy AMZN is now.
JR Research profile picture
@OscarSmith His tweet was cryptic....maybe he should just address his stock directly...
No Guilt profile picture

You could have bought IBM cheap 10 years ago, 5 years ago, last year.

Cheap cheap cheap.

Sometimes you get what you pay for.
Amazon was allowed to become a behemoth at the taxpayer expense because the Govt. wanted to increase ecommerce from infancy. Now the Govt. should make sure it helps competition for Amazon to get stronger.

Hands off approach is anti-competitive. There are many ways the govt. can constrain Amazon and helps its competition flourish.
Gary J is Rich on AMZN profile picture
@ding dong

Not until Amazon e-commerce share nears 100%.

Sorry, the best gets to be the biggest winners.
Advanced_Tech profile picture
Amazon is not the only stock being crushed.
in case you haven't noticed many stocks have crushed a lot harder -
Shopify Netflix PayPal and other tech stocks.
Amazon is crushing just like many other stcoks in the market esepcially tech.
i personally think the best thing to do if you have a long time horizon
is to hold if you believe in the company
And even buy more if you can for a cheaper price.
Amazon is a very profitable and succesful comapny with many growth drivers.
in the long run i believe we'll see Amazon reach all time highs.
JR Research profile picture
@Advanced_Tech We are still holders, albeit waiting to add. But, thanks for sharing your insights!
Greenhorn Investor profile picture
Thank you for the article. Been waiting a while for a material downdraft; we'll see how much more it has to go.
JR Research profile picture
@Greenhorn Investor You are welcome! Yes, let's see where it consolidates at.
Yes Amazon is slowing. Actually, all FAANG stocks are slowing at the same time even though they're in totally different sectors (FB - social media, Amazon - cloud + retail, Apple - mobile phones, Netflix - streaming, Google - search). Or maybe Mr. Market is just a bit depressed about tech and analysts can't see further than their nose when comparing numbers to last year which was exceptionally strong due to Covid. And just maybe growth will be back to normal in 1-2 years!
JR Research profile picture
@dimi1234 Needs to digest those gains, it's a good reset
It's a shame valuations have no bearing on stocks anymore. AWS is now worth more than the entirety of Amazon. Do we think Amazon e-commerce is worth a negative valuation moving forward with the massive investments in its growth and profitability? If so, ill buy Amazon e-commerce for $1000 gladly (the whole company, not per share). If we believe this, it implies a company that's expecting a good future with finnacials to prove as much should halt growth for profitability now for a more premium valuation.
Amazon doesn't believe today is the day to look for profits... they believe today is the day to invest in their future like so many other companies. Now is not a good time for anyone so looking for a brighter future is absolutely a great move.
Ron Struthers profile picture
I think the froth and high multiples are coming to an end for these high flying tech and FANG stocks. Their growth rates are slowing and will slow further, plus the added cost pressure from inflation. I have been warning about these stocks for months and most recent warned on Amazon just last Wednesday after Alphabet fell to my warning.


Agree, Amazon is going to 2,000. The Fed and Covid-19 easy money is coming to an end and that is what fueled high multiples. It really is that simple. Same reason why crypto has plunged, it was all built on easy spec $$
In my opinion, my opinion only... The cheaper AMZN gets, the more people will buy post split. It's psychological. AMZN will be an AAPL stock. Lots of splits, and never run out of money. Personally, I'm not real concerned when they say " AMZN should make *80 trillion!" and then AMZN makes ONLY *75 trillion. People forget, they STILL made 75 trillion. ( *** not "real" numbers) Amazon isn't going anywhere.
JR Research profile picture
@meadowlandscris AMZN P/E has always been tough to digest, we get that. So, Jassy & team just needs to get its execution right again.
winthorp profile picture
@JR Research isn’t p/s more indicative of true value at amazon
JR Research profile picture
@winthorp You can't use P/S with AMZN. 1P and 3P valuations will be distorted. Cloud and advertising also have different comps. Using earnings and FCF will be critical.
AMZN is on the buy list right now at these prices . This article should have been dated two weeks ago . Heading higher from here the damage has been done .
Not a fan of buying trillion dollar businesses on the dip. To increase by 20 percent they need to add market cap the size of Disney. What is going to go up 20 percent? Aws, the retail internet business, Whole Foods?
They have shown this quarter that they are no longer a growth stock, but a value play. Therefor the the PE will revert to a value play instead of a DCF machine high growth stock.
JR Research profile picture
@Randol33 For the next few quarters lightly in the penalty box...
@JR Research Good news is if it continues to lose between 3-15% a day thru next quarter it will finally get to a value PE of under 10.
Everyone loved it higher and now???
JR Research profile picture
@SRQ Dividend Investor It's not unloved. Just a wait for a while thesis.
Why wasn't Rivian and it's effect on the true valuation addressed?
JR Research profile picture
@yc_ent Rivian's gains/losses has no impact on its FCF yields.
@JR Research really, you went from valuation to fcf? Fcf is just a side note on the whole article. How about answer the question?
JR Research profile picture
@yc_ent fcf yield is a valuation metric, which was also discussed in our article above.
Proficiency Post profile picture
Bad advice!
Amazon deserves premium.
Band wagon broadcasters forget that Amazon's capital investments are written off v profits. That's why profits roller coaster under Bezos' policy.

Growth of +4% in Q1'22, on bumper Q1'21's +40% was hugely commendable and gained market share v all competitors
T'pee profile picture
Fair enough. Since I interpret from the article you still consider the thesis valid; what precise conditions would cause you to add and might this entail giving up a potentially very rewarding entry point?
JR Research profile picture
@T'pee It depends on where the stock would consolidate. For now, wait and see until it happens. Need to see the accumulation phase.
Tigerkz3434 profile picture
@JR Research how would one know when/where the accumulation phase starts?
JR Research profile picture
@Tigerkz3434 Price action will show, but takes weeks/months to build up.
Gary J is Rich on AMZN profile picture
AMZN is a buy and hold now more than ever. Period. Full stop.
@Gary J is Rich on AMZN no offense to your rich, but I hope $AMZN drops for real, not the peanuts it’s dropped the past few months. I want to accumulate it.
@Gary J is Rich on AMZN AWS alone is probably worth more than the market capitalization. But retail is in a perfect storm and investors are worried about the capital spending. When you buy AMZN stock you get the non-AWS business for free. The non-AWS side will get fixed and AWS will keep growing. WD
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