Imagine you could go back in time to November 2008. Amazon's (AMZN -0.17%) share price has dropped like a brick and is down well over 50% year to date. Would you buy the stock? You'd be crazy not to do so. Amazon went on to deliver a staggering 88x gain by the end of 2021.

Now let's return to the present. Amazon's share price has dropped like a brick yet again. It's down the most since that huge sell-off 14 years ago. Should you back up the truck and load up on Amazon stock?

Behind Amazon's plunge 

To answer that question, we need to first examine the factors behind Amazon's steep plunge this year. Much of the blame can be placed on macroeconomic headwinds and uncertainty that have caused the overall stock market to fall.

Amazon's revenue growth has been dampened by the strong U.S. dollar. In the third quarter alone, the company's sales were around $900 million lower due to unfavorable foreign exchange rates. 

But Amazon's growth is slowing even on a constant-currency basis. The company expects Q4 revenue will increase by only 2% to 8% year over year, with an impact of foreign exchange rates of around 460 basis points (or 4.6%). 

What's Amazon's main problem? Inflation. CFO Brian Olsavsky said in the company's Q3 conference call, "The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend." 

However, the top line isn't Amazon's only issue. The company's earnings are also falling because of a significant increase in spending. This has contributed to Amazon's free cash flow, arguably the most important measure of its financial health, sinking into negative territory.

Two important questions

One of the most important questions to ask when considering whether or not to buy Amazon stock now is: Are the company's issues only temporary? I think the answer is clearly "yes."

The two biggest challenges for Amazon right now -- the strong U.S. dollar and high inflation -- are intertwined. The dollar is strong in large part because of the Federal Reserve's monetary policy. And the Fed's policy, which is focused on aggressively raising interest rates, is in place to try to curb inflation.

Sooner or later, though, the Fed's moves will cause inflation to moderate. We're seeing a few signs that it could already be happening, such as the lower-than-expected producer price index announced earlier this month. When the Fed feels that inflation is in check, it will stop raising interest rates and will eventually lower them.

In the meantime, Amazon is wisely cutting costs to improve its bottom line and free cash flow. The company announced major layoffs recently. It's also shutting down several businesses that have weighed on growth.

There's also another important question that investors should consider: Does Amazon have strong growth prospects? Again, I think the answer to this question is a resounding "yes."

E-commerce in the U.S. made up only 14.1% of total retail sales in the third quarter of 2022. Cloud hosting remains an attractive option for businesses, with Amazon Web Services still the No. 1 player in this market. Amazon also has other potential growth drivers, including its moves into digital advertising, healthcare, and streaming TV.

Back up the truck?

Probably the biggest knock against Amazon is its valuation. The stock trades at more than 46 times expected earnings. I suspect that most discounted cash flow models analyzing Amazon would indicate that the stock is overvalued despite its sharp decline this year.

However, Amazon has appeared to be overvalued throughout its entire history. That hasn't prevented the stock from delivering massive returns. The reality is that Amazon is a business that's difficult to value because its management team continually comes up with new ways to grow. That's a good "problem" to have for investors.

Amazon isn't likely to go on the huge surge going forward as it did after 2008. But I fully expect the stock will nonetheless return to its winning ways in the not-too-distant future. Should you back up the truck and load up on Amazon stock? I think so.