Amazon’s stock is misunderstood for these 3 reasons, according to an analyst

by user Inc. could post the lowest growth rate this year for its North American retail business in over two decades, but where some might see a worrisome slowdown, Evercore ISI analyst Mark Mahaney sees opportunity.

The ability for Amazon

to reignite revenue momentum across its business is one pillar of Mahaney’s bullish view on the stock, which he called his “Triple Trough Thesis.” Mahaney is of the view, for one, that Amazon likely is at “trough growth.”

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“First, we believe the current growth rate is depressed by the overall softness in consumer discretionary spend,” Mahaney wrote of Amazon’s retail business, which he expected will grow revenue by 10% this year, compared with 13% last year. An improvement in macroeconomic trends “should enable an acceleration in North American Retail revenue growth.”

Further, Amazon could see big revenue benefits as it continues making its shipping times ever speedier. As Mahaney wrote, “the faster the shipping, the greater the demand.”

On the cloud-computing side of the business, Mahaney saw the potential for an even more dramatic slowdown in the near term. Revenue there could increase by only 10% or 11% in the second quarter and 16% for the whole of 2023, by his estimates, versus 29% in 2022.

But he also saw room for Amazon to drive a growth inflection after the second quarter of this year, driven by easier comparisons, traction for artificial-intelligence workloads and a relaxation of “optimization” efforts like discounts and bundled renewals.

Read: Amazon catches a storm in the cloud, but ‘significant fear’ may mean opportunity

Another element of Mahaney’s bull case was that Amazon is pretty close to a trough multiple. He noted that the stock trades at 11 times enterprise value to earnings before interest, taxes, depreciation and amortization — near its five-year low of a 10-times multiple on the metric but way below its five-year high of 18 times.

That multiple could move higher if Amazon shows recovery in operating margins and succeeds in reaccelerating revenue growth.

Finally, Mahaney saw the “probability” that Amazon is at a trough margin, after posting a negative operating margin for its North American retail business last year.

The company “faced the perfect macro storm of surging fuel, shipping, raw materials, and labor costs,” he wrote, but trends turned positive in the first quarter, and Mahaney envisioned a path back to 5% operating margins for the segment as the “perfect storm” of headwinds eases and Amazon benefits from greater capacity utilization.

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Mahaney had an outperform rating and $150 target price on Amazon shares, which have advanced 37% so far this year.

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