The Amazon share price slumps. Here’s what I’d do now

The Amazon (NASDAQ: AMZN) share price has slumped in value over the past few weeks. Since reaching an all-time high of around $3,731 at the beginning of June, the stock has fallen back to around $3,200. That’s a decline of 14%.

Following this performance, the stock has returned just a 0.4% since the beginning of the year. And over the past 12 months, shares in the e-commerce giant have fallen around 3%, underperforming the primary US stock index, the S&P 500, by around 26%, excluding dividends. 

I think this could be an opportunity. The stock has fallen even though Amazon, one of the pandemic’s biggest winners, has reported an improving fundamental performance.

Is the Amazon share price on offer?

Over the past 12 months, shares in the e-commerce giant have fallen 3%. However, its revenue has increased 27% year-on-year during the same timeframe, and net income has increased 48%. 

The coronavirus pandemic has accelerated the shift towards online shopping. As one of the biggest and most efficient online retailers in the world, Amazon has benefited disproportionately.

While there are some signs consumers are going back to previous shopping habits as economies reopen, I think it’s unlikely the economy will ever return to pre-pandemic trends.

This is a view echoed by other online retailers such as Next and Ocado, with the majority of their consumers seeming to have changed their habits for good. 

Amazon’s financials do provide some evidence of the above trends. While revenues increased nearly 30% year-on-year in the second quarter, in the same period a year ago revenues jumped 40%. 

I think this is the reason why the Amazon share price has underperformed recently. The company’s growth has slowed, and this has spooked investors. 

The stock is currently selling at a forward price-to-earnings (P/E) multiple of nearly 48. That’s relatively high. To sustain this high valuation, the company’s breakneck growth will have to continue. If growth slows substantially, the stock may end up becoming too expensive, and investors may move on to other opportunities.

Based on the recent performance of the Amazon share price, it looks as if they already have. 

Growth slowdown

The question is, is this trend here to stay? In the short term, I think it could be. Amazon’s growth has been nothing short of outstanding during the past couple of years, and it may struggle to maintain this growth in the years ahead. 

However, I don’t think that means the business will stop growing. Amazon has always been incredibly successful at investing group profits back into new growth projects. These projects have gone on to become multi-billion dollar organisations in their own right, such as the firm’s advertising division. 

This innovation leads me to conclude that while Amazon’s growth may come off the boil in the near term, in the long run, the enterprise still has tremendous potential. As such, I think the recent decline in the Amazon share price could present an opportunity. I’d buy the stock for my portfolio today.