Amazon Stock Is Trading at a Historically Low Valuation
Key Points
Amazon's stock trades at less than 28 times earnings, which is far below its 10-year average.
The company still possesses exciting growth opportunities in e-commerce, cloud computing, and even robotaxis.
For years and even decades, Amazon (NASDAQ: AMZN) stock has been synonymous with growth. It is one of the most valuable companies in the world, and it continually invests in leading technologies to become even bigger and better.
But what I find a bit surprising is that over the past five years, it has actually underperformed the S&P 500. The index is up over 60% during that time frame, but shares of Amazon have only risen by 30%. It's almost as if investors have grown tired of the stock and moved on to other, flashier names.
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Meanwhile, Amazon has continued to grow its earnings. And when the stock price doesn't rise in unison, that effectively makes it cheaper with respect to its bottom line. That means if you're looking to buy Amazon stock today, you could be getting it at an incredible deal.
Image source: Getty Images.
Amazon is trading at a fairly modest price-to-earnings multiple
To truly get a good gauge of how cheap or expensive a stock is, you need to consider its earnings per share (EPS). A stock's price can seem high, but if its earnings are also high, then you're getting some good bang for your buck, and it may actually be a cheap investment overall.
Today, Amazon's stock is trading around $200, but given its level of profitability, it's not hard to make the case for why it's a deal. Its diluted EPS over the past 12 months is $7.18, which means the stock's price-to-earnings (P/E) multiple is less than 28 -- which is extremely low compared with what it has averaged over the past decade.
AMZN PE Ratio data by YCharts
There have been brief periods when the stock's valuation has become inflated, which impacts the overall average. But even if you ignore those fluctuations, there's no denying that the stock's P/E multiple is still far lower today than what it has historically averaged.
The stock is one of the best buys in the market today
Amazon's stock has been performing poorly this year, but that's largely due to broader, macroeconomic forces outside of its control. The company itself remains impressive, with Amazon still pursuing more growth opportunities, such as offering even quicker delivery options, enhancing its Alexa assistant with artificial intelligence features, investing in its cloud business, and also expanding its Zoox robotaxi operations.
While its $2.1 trillion valuation may seem excessive, this is a business that generated just under $78 billion in profit over the past four quarters. The company is massive, and with strong financials and plenty of growth opportunities still out there, it can be a great growth stock to buy 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.
