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Why Amazon.com Stock Slipped This Morning

Motley Fool - Tue Oct 17, 2023

Amazon.com (NASDAQ: AMZN) stock shed nearly 3% of its value in early trading on the Nasdaq Tuesday before paring those losses to about 1%, as of 11 a.m. ET. But why did Amazon tumble in the first place?

The catalyst for the stock's slip this morning appears to trace back to a pair of analyst notes.

What is Wall Street saying about Amazon.com?

In a one-two punch of negative news this morning, first Truist bank lowered its price target on Amazon stock to $174 a share. Then UBS followed with a reduction to $178 a share.

Truist highlighted a lack of growth in ad pricing on Amazon's marquee website, as well as "slightly below consensus" sales for the retail giant as the reasons for its more conservative stance, reports TheFly.com. UBS added that growth in Amazon's ultra-profitable Amazon Web Services (AWS) cloud computing division looked "challenging" in September.

If the news is bad, why is Amazon's stock price starting to recover?

Both Truist and UBS cut their price targets on Amazon.com stock today but both also insisted that Amazon stock is a buy. And on top of that, their new price targets, while lower than yesterday, still imply that there's room for Amazon stock to grow 32% (Truist) or even 35% (UBS) over the next year.

When you look at things this way, the news out of Wall Street doesn't look so bad for Amazon stock at all.

Admittedly, there's room for disagreement here. With trailing free cash flow (FCF) still depressed to a lowly $3.2 billion collected over the past year, Amazon stock still looks very expensive at a valuation of 425x FCF. Peer out just a few years to 2026, however, when analysts see Amazon's cash profits recovering to more than $90 billion, and the stock starts looking a whole lot more attractive at a forward valuation of just 15x 2026 free cash flow.

If you can be patient that long, Amazon stock might very well prove the analysts right to recommend it.

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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.com. The Motley Fool has a disclosure policy.

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