Are Amazons lousy earnings a buying opportunity or a sign of a

Monday, May 2, 2022
author picture Louis Robert
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Original content created by news.limited staff

Are Amazon's Lousy Earnings a Buying Opportunity Or a Sign of a Recession?

Are Amazons lousy earnings a sign of a recession or a buying opportunity? The answer to that question is complex. You should consider when you would sell Amazon and buy in a bull market‚ recession‚ or bear market. The market could rally after a good news announcement‚ such as peace in Ukraine. If you are already an owner of Amazon‚ you should hold it and avoid entering.

Price target cut

Analysts are cutting their price targets on Amazon (AMZN) stock after the company posted terrible quarterly earnings. While it is possible that the disappointing results are a buying opportunity for those looking to invest in a stock with a price target cut‚ there are other signs that the company's price could be headed for a lower floor. It is possible that the stock will drop another 5% after the company reports its quarterly results on February 3. It is possible that the stock will continue to drop a few more percentage points‚ but it is definitely not a sign of a bear market. Susquehanna reiterated their buy rating on Amazon shares‚ while Wedbush dropped their target to $3‚800 from $5‚500. Though analysts are still rating the stock positively‚ they are cutting their price targets because Amazon's profits are expected to slow in Q1 2022‚ when many products will be sold via its website. However‚ these analysts still maintain a buy rating on the stock. If Amazon fails to meet its guidance‚ then its stock may fall even further. With a lack of positive guidance‚ Amazon stock could drop as low as its pre-COVID levels. With so many factors at play‚ investing in stocks is more complicated than ever. Companies rise on little news and fall on the contrary of logical trends. Reading the Markets can help investors weed through the noise and make good decisions.

Sign of a buying opportunity

Investors have been spooked by Amazon's recent disappointing earnings. The company guided for net sales for the second quarter of between $116 billion and $121 billion‚ which represents a 5% decline from Wall Street's expectations. Furthermore‚ sales in Amazon's e-commerce business fell 3% year over year to $51.1 billion during the first three months of 2019. This has led investors to discount Amazon's stock‚ sending its share price crashing more than 10% in recent days. The stock is still undervalued at roughly a P/S ratio of three‚ and the stock is down 20% from its high of $3‚770. While the earnings miss is disappointing‚ the company's growth prospects remain strong. Moreover‚ the company's board recently approved a $10 billion stock repurchase program‚ which represents just 0.67% of the shares outstanding. Nevertheless‚ the move doesn't change the company's business valuation. Analysts at Bank of America reiterated their buy rating for Amazon shares‚ but cut their price targets from $4‚225 to $3‚770. Since Amazon earns about half of its revenue from its cloud business‚ this means that the stock is now a buy-worthy opportunity for investors. However‚ the analysts at Bank of America have reduced their target price from $4‚110 on March 31 to $3‚704 on Monday.

Sign of a recession

The company is due to release its first-quarter earnings on March 28‚ and while it's possible that consumers have started ordering more products online in early January‚ that may have only been a temporary boost. Still‚ most macroeconomic indicators showed that the first quarter was resilient‚ with strong job growth exceeding expectations and retail spending maintaining the momentum it started in 2021. In this case‚ Amazon's earnings should not be seen as a warning of a recession‚ but rather as a buying opportunity. The stock has dropped 34% from its July highs‚ and the current market environment isn't a good one for growth stocks. Investors worry about global supply chain disruptions‚ escalating conflict in Europe‚ and the Fed's potential to trigger a recession. The company has several challenges ahead of it‚ from the war in Ukraine to rising fuel prices. Meanwhile‚ consumers are cutting back on discretionary spending amid higher prices.