Should You Buy Amazon Stock Now or Wait for a Dip?
Key Points
Amazon's stock is trading at an unusually low earnings multiple.
The business continues to grow at a solid rate and has promising opportunities related to artificial intelligence.
- Motley Fool Issues Rare "Total Conviction" Buy Alert ›
For not only years, but decades, Amazon (NASDAQ:AMZN) has been a top growth stock to buy and hold. It's generated massive returns for investors. But lately, that just hasn't been the case. In the past 12 months, it's up by just 11%. While that's a decent return, it trails the S&P 500, which has risen by 13% during that time frame.
There's been a lack of excitement around the stock of late, and it's down 6% in the past six months. Should investors buy it right now, or hold off for an even greater dip in price before doing so?
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Image source: Amazon.
This is not typical territory for Amazon stock to be in
In the past, it wasn't uncommon for Amazon's stock to trade at inflated multiples with respect to earnings. Paying more than 50 or 60 times earnings wasn't unheard of, given how much growth potential the company had. Today, however, it's trading at a price-to-earnings (P/E) multiple of just 20. And while it did get a boost from investment-related gains in its most recent results, even on a forward earnings basis, which factors in analyst expectations, its forward P/E multiple is still fairly low at 23.
Meanwhile, the company has continued to do well. When it released its second-quarter results in July, its sales were up a solid 20% and operating income was even more impressive, rising by 43% year over year. The growth hasn't dried up by any means. Meanwhile, the business still has plenty of opportunities for growth related to artificial intelligence (AI), which should lead to even better results in the future.
Investors may be less excited about the business due to the flurry of other AI stocks to choose from.
Has Amazon's stock become a bargain buy?
In five years, Amazon's stock has risen a relatively modest 47%. That includes, however, the crash that took place in 2022. With the company a leader in tech and AI innovation, it can make for a tremendous long-term buy, particularly given its reduced valuation.
While the stock may potentially go lower if there are concerns related to the tech sector as a whole and inflated levels of capital spending on AI, Amazon remains one of the best tech stocks to buy. Investors shouldn't assume a greater decline is coming for Amazon's stock, as it already looks like a great buy right now, and a rally may be overdue.
Should you buy stock in Amazon right now?
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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