Seattle. Wash.-based Amazon.com, Inc. (AMZN) is the largest global e-commerce retailer with a $1.67 trillion market cap. Ranked #2 in the Fortune 500 list, AMZN has benefited greatly from the remote lifestyle, which has increased the demand for online shopping substantially over the past 20 months.

However, AMZN has been the worst-performing stock among its peers in the FAANG group. The stock has gained 2.1% in price over the past year but slumped 6.4% over the past six months. Also, it has declined 1.4% year-to-date to close yesterday’s trading session at $3,287.14. 

Investors have been concerned about the impact of supply chain headwinds and labor shortage on AMZN’s operations and profit margins, causing the stock to retreat so far this year.

Here is what could shape AMZN’s performance in the near term:

Impressive Growth Story

AMZN’s revenues have increased at a 27.5% CAGR over the past three years and at a 29% CAGR over the past five years. The company’s EBITDA has grown at a 40.7% rate over the past five years and at a 32.9% rate over the past three years. And its net income and EPS improved at CAGRs of 43.4% and 42%, respectively, over the past three years, and at CAGRs of 65.7% and 63.6% over the past five years. In addition, AMZN’s total assets have risen at a 62.4% rate over the past three years and at a 49.8% rate over the past five years.

Antitrust Allegations

AMZN has been facing antitrust allegations for some time, with federal regulators globally accusing the e-commerce giant of monopolistic practices. The U.S. Federal Trade Commission might impose antitrust guide rails on the company’s cloud computing services, Amazon Web Services (AWS), which are headed by Lina Khan.

Furthermore, U.S. Senators Amy Klobuchar and Chuck Grassley have together introduced The American Innovation and Choice Online Act in Congress, targeting AMZN’s self-preferencing online sales practices.

Mixed Profit Margins

AMZN’s 41.31% trailing-12-month gross profit margin  is 15% higher than the 35.91% industry average. Its 13.19% EBITDA margin is 3% higher than the 12.8% industry average. Also, AMZN’s trailing-12-month ROE, ROA, and ROTC of 25.83%, 6.87%, and 8.1%, respectively, compare with the 17.23%, 5.94%, and 7.54% industry averages.

However, the company’s 5.73% and 2.02% respective trailing-12-month net income and levered free cash flow margins are significantly lower than the 6.56% and 5.95% industry averages. 

Consensus Rating and Price Target Indicate Potential Upside

Each of the 30 Wall Street analysts that rated AMZN have rated it Buy. The $4,317.50 12-month median price target indicates a 25.9% potential upside from yesterday’s $3,287.14 closing price. The price targets range from a low of $3,800.00 to a high of $4,700.00.

POWR Ratings Reflect Uncertainty

AMZN has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct Factors, with each factor weighted to an optimal degree.

AMZN has a C grade for Sentiment and Stability and a D grade for Value. Analysts expect the company’s revenues to increase 9.7% in the about-to-be-reported quarter (ending December 2021). However, its EPS is expected to fall 73.5% in the fiscal fourth quarter, which is in sync with the Sentiment grade. In addition, the stock’s relatively high 1.13 beta justifies its Stability grade. Also, AMZN’s 3.10 forward non-GAAP PEG ratio is 228.8% higher than the 0.94 industry average, which accounts for its Value grade.

Of the 77 stocks in the Internet industry, AMZN is ranked #32.

Beyond what we have stated above, we have rated AMZN for Growth, Quality, and Momentum. View all AMZN ratings here.

Bottom Line

As one of the biggest e-commerce brands, AMZN is expected to maintain a stable growth trajectory over the long run. However, the company’s profit margins are expected to take a hit in the coming months because the ongoing supply chain disruptions and labor shortages have increased its expenses. Furthermore, we think investors should wait until the antitrust allegations against AMZN are resolved before investing in the stock.

How Does Amazon.com, Inc. (AMZN) Stack Up Against its Peers?

While AMZN has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Travelzoo (TZOO), Yelp Inc. (YELP), and Alphabet Inc. (GOOGL), which have a B (Buy) rating.

AMZN shares were trading at $3,275.03 per share on Thursday afternoon, down $12.11 (-0.37%). Year-to-date, AMZN has declined -1.78%, versus a -1.00% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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