There’s a lot going on with Amazon (NASDAQ:AMZN) stock currently. But the overall thrust is that it’s a great time to invest after shares have fallen roughly 28% year-to-date — nearly 38% down at its trough. Let’s start by accounting for the recent stock split news as well as the so-called retail wreck and how both positively affect the e-commerce giant.
| AMZN | Amazon | $2,428.09 |
AMZN Stock Split Approved
On May 25, Amazon shareholders had a lot to vote on during the company’s annual shareholder meeting. Those shareholders voted down a record 15 proposals this year. That was big news as unionization efforts and environmental questions loom large for the firm.
Shareholders also approved a proposed 20-for-1 stock split at the same time. That’s great news for current and potential investors. Shares will trade at one-twentieth the price come June 3.
As many have noted, the move doesn’t affect Amazon’s underlying market capitalization immediately. It simply increases the number of shares by a factor of 20.
But that’s good news because, in theory, it could lead to an increase in market cap. The shares become more affordable, which can easily drive up demand. If, for example, demand increases by 5% following the split, then AMZN stock prices will rise, which will raise its market cap.
Retail Wreck Really a Boon?
Amazon is at the forefront of the so-called tech wreck. As noted, its share prices declined by more than one-third this year before making a small recovery. As markets have soured, the retail sector has foundered as well.
Disappointing earnings from Target (NYSE:TGT) and Walmart (NYSE:WMT) indicate that consumer spending is entering a downturn. Big-ticket electronics sales have declined, and consumers are moving toward essentials amid historic inflation.
This phenomenon has been dubbed the retail wreck.
Citigroup analyst Ronald Josey believes Amazon is in a relatively strong position to gain in this environment. He stated in a research note that like other retailers, Amazon will have to deal with weaker consumption and higher costs. However, he believes it can gain wallet share due to its convenience and delivery times.
With gas prices continuing to increase it certainly makes sense that consumers would look to Amazon delivery rather than driving to big box alternatives.
It’s Hard to Count AMZN Stock Out
It’s very hard to bet against investing in Amazon as a buy-the-dip opportunity. Essentially, it looks like a no-brainer at this point.
Target prices indicate 50% upside. But those are based on projections a year in advance. That’s certainly attractive, there’s no denying it. It’s almost certainly a good time to buy shares and sit on them for a year or two.
But there’s the near-term catalyst in the form of the upcoming stock split. That should propel Amazon upward. And if Citigroup’s Ronald Josey is correct, Amazon also could reemerge as a stronger player vis-a-vis big-box retailers that have already priced in higher costs.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.