Band Stjepan Kalinic

This article first appeared on Simply Wall St News.

Either you die of an e-commerce store or you grow old enough to see yourself opening a brick and mortar operation.

Interestingly, it happens to Amazon.com, Inc.(NASDAQ: AMZN), but that might not necessarily be a bad thing, given the latest antitrust laws.

See our latest analysis for Amazon.com.

Latest developments

Although not the first venture outside of the online marketplace (Amazon Go Store, acquisition of Whole Foods), Amazon’s plans to open its first physical clothing store appear to be the next step in its expansion. According to Wells Fargo, Amazon overtook Walmart as the largest apparel retailer in the United States with $41 billion in apparel and footwear sales.

The company plans to leverage its technology to streamline the experience, blending the online and offline shopping experience. The first store is expected to open in Glendale, California later this year.

Meanwhile, the Senate panel approved antitrust legislation that prohibits top tech platforms from favoring their own products and services over those of their competitors. Sen. Chuck Grassley (R-Iowa) reflected on the bill, saying its purpose is to “prevent behavior that stifles competition” and not break Big Tech.

In the first 3 weeks of 2022, Amazon fell 16%, causing the Nasdaq to correct. Yet, as earnings approach, some institutions are trusting mega-cap stocks to turn the tide. Dan Ives, managing director of Wedbush Securities, pointed to the cloud space as “potential tech saviors,” including Amazon’s Web Services (AWS) unit. Such an event wouldn’t be the first as AWS came to the rescue last quarter, beating expectations by $630 million.

Amazon Returns Review

In his essay “The super-investors of Graham-and-Doddsville” Warren Buffett has described how stock prices don’t always rationally reflect a company’s value. One way to look at how market sentiment has changed over time is to look at the interaction between its stock price and its earnings per share (EPS). Amazon.com has achieved compound earnings per share (EPS) growth of 63% per year for five years of share price growth. This EPS growth is greater than the average annual share price increase of 28%. So it seems that market enthusiasm is lagging. That said, the market remains bullish given the P/E ratio of 55.09.

You can see how EPS has changed over time in the image below (click on the graph to see the exact values).

It’s of course great to see how Amazon.com has grown its profits over the years, but the future is more important to shareholders. Take a closer look at Amazon.com’s financial health with this free report on its balance sheet.

A different perspective

Amazon.com shareholders are down 16% on the year, driving the decline of the Tech sector. However, remember that even the best stocks will sometimes underperform the market over twelve months. On the positive side, long-term shareholders made money, gaining 28% per year over half a decade. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. However, short-term pain is a real possibility as the scale of the sector declines. It only takes one of the biggest players to slide and drag the whole market to new lows.

It is always interesting to follow the evolution of the share price over the long term. But to better understand Amazon.com, we need to consider many other factors. Even so, be aware that Amazon.com displays 2 warning signs in our investment analysis, and 1 of them is significant…

We’ll like Amazon.com better if we see big insider buys. In the meantime, watch this free list of growing companies with significant and recent insider buying.

Feedback on this article? Concerned about content? Contact us directly. You can also email the editorial team@simplywallst.com

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.