Amazon Stock: Buy, Sell, or Hold?

After disappointing investors in 2022 with a 50% drop, Amazon (AMZN 1.65%) shares have had an impressive run this year. As of this writing, the stock is up 71%, trouncing the still-impressive 35% rise of the Nasdaq Composite index.

From a fundamental perspective, the tech juggernaut is seeing some strong momentum as it relates to its improving fundamentals. And the future is still very bright for this company. But what’s the best course of action right now? Should investors buy, sell, or hold this FAANG stock?

Impressing Wall Street

This e-commerce, cloud computing, and digital advertising behemoth reported third-quarter financial results that exceeded consensus analyst expectations. Revenue totaled $143.1 billion, up 13% year over year. Diluted earnings per share of $0.94 increased 236%. As of Nov. 15, shares have increased over 20% since that earnings announcement.

That top-line sales figure was the fastest pace of growth since the third quarter of 2022, a potential sign that the business is starting to see accelerating gains. This is especially encouraging given that Amazon saw revenue rise by just 9.4% in 2022, its slowest growth rate in at least the past two decades.

A highlight of the quarter was that the North America segment, which represents 61% of overall company sales, continues to see its profitability improve. The segment’s operating margin last quarter came in at 4.9%. This is a massive improvement from the operating loss posted in all of 2022. “Since North America operating margins bottomed out in Q1 of 2022, we have now seen six consecutive quarters of improvement,” CFO Brian Olsavsky said on the earnings call.

Not only have the layoffs of 27,000 employees helped reduce expenses, but Amazon has focused on simplifying its distribution capabilities, now operating a regional-based network. The result has been more efficient inventory placement, greater volume density, and lower costs.

One area that might have disappointed investors was Amazon Web Services (AWS), the cloud computing division. It missed Wall Street revenue estimates by $100 million, while also posting a less-than-stellar year-over-year growth rate of just 12%. The leadership team blamed ongoing cost optimization efforts from customers.

It’s not all bad news. “We’re seeing the pace and volume of closed deals pick up, and we’re encouraged by the strong last couple of months of new deals signed,” CEO Andy Jassy mentioned.

Don’t overthink it

Investors might be discouraged by the fact that AWS is posting much slower revenue growth than it has for much of its history. And it’s certainly losing market share to its smaller rivals, Microsoft Azure and Alphabet‘s Google Cloud, which were able to increase sales by 29% and 22%, respectively, in the most recent quarter.

But I don’t think that’s a compelling enough reason to sell the stock. In fact, those investors who have been eyeing this business should seriously consider buying shares instead.

For starters, Amazon is the clear leader in various industries that are benefiting from powerful secular growth trends. E-commerce represents about 15% of overall retail spending in the U.S. Cloud computing is forecast to be a $1.6 trillion industry by 2030. And digital advertising, a segment for Amazon that experienced impressive 25% growth last quarter, is another industry that has lots of room to expand in the next decade.

It’s also hard to see many companies being able to compete with Amazon’s tremendous scale. This means the business can more cheaply deliver products to consumers than rivals with less robust fulfillment networks. It also means that Amazon has the financial resources and human capital to continue investing in new areas, such as artificial intelligence, to maintain its competitive positioning.

The stock currently trades at a price-to-sales multiple of 2.7, which is below the 10-year historical average. It looks like now is a good time to add Amazon to your portfolio.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.

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