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Is Amazon Undervalued?

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The e-commerce giant put up strong growth, but investors shrugged.

When Amazon (AMZN -0.03%) reported its fourth-quarter earnings earlier this month, it was hard to find fault with the results. Net sales jumped 44% year over year while net income more than doubled. In the wake of those impressive results, the stock has drifted downward, as investors seemingly brushed off the company's strong growth.

On this clip from Motley Fool Live, recorded on Feb. 12, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Jamal Carnette discuss investors' reaction to the report and why the stock seems to be stuck in neutral.

Jason Hall: Serge Lou's question. Let's grab this one here. Somebody want to make a pass. "Do you think Amazon is currently undervalued? The company puts up great numbers but the price of the stock has been more or less flat for the last half a year." Anybody want to make a stab at that?

Jamal Carnette: I can jump in here. The answer is, I think we've witnessed this is the cheapest Amazon has been in any significant period ever. I believe the price-to-sales is under five. It's consistently profitable here. Amazon Web Services is going to continue to drive results.

Much like my argument with Microsoft (MSFT 3.20%) earlier, with the Internet of things and with the large increase in total compute functions that are going to have to occur as autonomous vehicles come online, as your toaster now needs to connect to the internet, as [laughs] smart cities occur. That's going to happen probably through either Microsoft or Amazon host of services there.

Ultimately I believe that it is undervalued. I believe that these numbers are relative when you throw out like so many trillion. It's fearful because just a little while ago we didn't even have a $1 trillion company. But I think that's past thinking.

My answer to the question is I am definitely in the camp that Amazon remains undervalued. I'm an owner and I will continue to be so.

Hall: Very good. Thank you.

Danny Vena: I wanted to throw it out there...

Hall: Please.

Vena: Just quickly. If you look at the Amazon stock chart, it's important to remember that from its bottom in March, when Amazon was less than $1,700 a share, it more than doubled to $3,500 a share, before it went terribly further than that. We're talking from March to September, the stock essentially doubled. The fact that the stock hasn't really moved very far in six months, well, yeah, it hasn't, but you need to put that into perspective of the stock more than doubled before it slowed down to regroup.

Jason Hall: I'm going to belabor this point just a little bit longer, because I think this is important. Amazon also didn't do what a lot of other stocks did in March. It didn't crash. The S&P 500, from late February through March 23, fell 34%. Amazon fell 7%. The risk profile is completely changed. It's not a risky company anymore. Stock is going to be volatile, of course. I don't think it's a risky company to invest in anymore.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,151.14 (-0.03%) $0.68
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$260.65 (3.20%) $8.09

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