Amazon's (AMZN 1.06%) stock has had a phenomenal year, as it has already risen 55%. However, many investors might wonder if Amazon stock has run too far to purchase the stock now.
So is Amazon stock still a buy now? Or should investors avoid it until the stock has dropped a bit? Let's find out.
Amazon's long-term outlook is strong
Amazon's business has undergone significant transformations over the past few years. Thanks to the e-commerce spike that COVID-19 generated, Amazon rapidly expanded to meet the demand.
However, once the need for e-commerce shopping subsided, Amazon's overexpansion caused some problems. Additionally, founder Jeff Bezos stepped down from his CEO role and passed the reins to Andy Jassy.
That's a big culture shock, but Amazon's business has stayed strong. In Q1, net sales rose 9% year over year, but each segment had interesting storylines.
Its North American commerce segment saw revenue growth of 11%, and the segment turned its first operating profit since Q3 2021. This shows that Jassy's efficiency measures are working, although they're far from finished. Pre-pandemic operating margins were about 5%, and CFO Brian Olsavsky says it will take more than a couple of quarters to return to those levels, although that's the end goal.
International sales were only up 1%, although its operating loss improved from $1.28 billion last year to $1.25 billion this year. However, investors shouldn't get too caught up with the losses here, as Amazon is playing the long game. CEO Andy Jassy commented that international is a mix of established and profitable regions and others still being built out. While the losses may concern investors, it's a segment that should be a long-term business boost years down the road, making short-term losses tolerable.
Some of Amazon's target international countries include places like India, where e-commerce hasn't been fully integrated into society yet. These markets are still being developed, but once e-commerce becomes more common, the sheer population of the region should drive significant revenue growth. This won't happen overnight, which is why investors will need to be patient with the international segment.
Finally, Amazon Web Services (AWS) is starting to show some cracks in its business. Revenue only grew 16%, marking some of the slowest rates ever seen for this segment. Furthermore, operating income was down 21% year over year, although the margin was still an impressive 24%. Olsavsky commented that AWS customers are looking to optimize their spending thanks to the economic outlook, which will cause even more growth slowdown during Q2.
Overall, Amazon is seeing some short-term challenges, but the five-year outlook of the company still looks incredibly positive. Still, if you pay the wrong price for a stock, it may not matter where the company is at in five years. So is Amazon still priced to buy?
Amazon stock is still historically cheap despite its run-up
While there are multiple ways to value a stock, the best way to assess Amazon's is a price-to-sales ratio. Because Amazon isn't optimized for profits, the price-to-earnings ratio doesn't convey how cheap (or expensive) the stock is. The only thing that has been fairly constant from pre- and post-pandemic Amazon has been its sales.
At Amazon's current valuation of 2.5 times sales, it's still well below its historical P/S ratio.
AMZN PS Ratio data by YCharts
While the stock isn't nearly as cheap as it was just six months ago, it's still not expensive in the grand scheme of things, especially considering that high-margin businesses like AWS, advertising, and third-party seller services are making up a larger part of Amazon's business.
At these levels, Amazon still looks attractively priced. While a complete turnaround may be three to five years ahead, getting into the stock now may be smart. Although it may be intimidating, getting into the stock after the 50% run-up isn't a bad idea for long-term investors.
