Skip to main content

Boeing Company(BA-N)

Today's Change
Real-Time Last Update Last Sale Cboe BZX Real-Time

Amazon Stock Popped This Morning and Is Still Up. Is It a Buy?

Motley Fool - Wed Nov 22, 2023 AMZN) stock bounced back from its Tuesday sell-off this morning, rising 2.2% through noon ET. As the day flips from morning to afternoon, it looks like the e-commerce giant is going to hold on to its gains, and maybe even gain some more. As of 1:30 p.m. ET, the stock is up 2.3%.

Amazon, as you've probably heard by now, got hit yesterday by news that company founder and former CEO Jeff Bezos had just donated 1.6 million Amazon shares to charity, as well as rumors that he was preparing to sell another 8 million to 10 million shares for cash.

The rumors are true

As I explained this morning, the rumors are probably true. Jeff Bezos's space company Blue Origin, you see, is reportedly deep in a bidding process to acquire Boeing and Lockheed Martin's space company, United Launch Alliance.

Blue Origin may or may not win this auction. But if it does win, the company will probably have to come up with $5 billion or more in cash to pay for it.

And here's the thing: While Blue Origin is currently operating a small space tourism business and gets some revenue from that, and it also plans to build rockets capable of carrying cargo to space, the company still gets the bulk of its funding from Jeff Bezos personally -- in the form of cash generated by annual sales of $1 billion worth of Amazon stock.

Not only does this mean that Bezos is almost certainly planning to sell $1 billion worth of Amazon stock. It means he probably has contingency plans to sell as much as $5 billion.

Is Amazon stock a buy?

And yet, as I also pointed out, even $5 billion is just a 3.5% drop in the bucket of Jeff Bezos's enormous wealth, estimated at $144 billion in total. Even if every rumor about Bezos selling Amazon stock proves correct, it doesn't mean that he's lost faith in Amazon or is dumping his shares.

But it doesn't mean stock is a buy, either.

Consider that at $1.52 trillion in market capitalization, $16.9 billion in trailing free cash flow, and $20.1 billion in trailing net profit, Amazon stock costs roughly 90 times the amount of cash profit it generates in a year -- and more than 75 times net earnings.

Granted, Amazon is an amazing business and an amazingly successful company, pegged by Wall Street analysts for 30% annualized earnings growth over the next five years. Yet, Amazon stock costs a PEG ratio of 2.5 and is even pricier when valued on cash profits. Its price-to-free cash flow-to-growth ratio stretches to 3.0, or three times what I'd ordinarily consider a "cheap" price.

Long story short: Just because Jeff Bezos is selling some Amazon stock doesn't mean you have to as well. But just because you don't need to sell doesn't mean you should buy Amazon stock, either.

10 stocks we like better than Amazon
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Amazon wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 20, 2023

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.