Amazon stock rallied today — here’s why now might be the time to buy

Could this be the start of the rebound investors have been waiting for?

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Image source: Amazon

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

What happened 

Shares of (NASDAQ: AMZN) climbed on Thursday, following bullish remarks from the e-commerce titan's leadership and better-than-expected consumer-spending figures. By close of market, Amazon's stock price was up over 4%.

So what

Like many retailers, Amazon's profits have been dented by coronavirus-related supply chain disruptions and geopolitical-driven energy price increases. Higher product, freight, and fuel costs are ongoing challenges.

At the same time, Amazon is dealing with an excess of fulfillment capacity. The e-commerce giant invested tens of billions of dollars to build warehouses and other distribution centers to meet the torrid demand from online shoppers during the early stages of the pandemic. But with e-commerce sales slowing as more people return to traditional retail stores, Amazon now finds itself with too much warehouse space.

During Amazon's shareholder meeting on Wednesday, CEO Andy Jassy acknowledged the problem and said the company was working to right-size its fulfillment network by delaying new builds and allowing some leases to expire. Jassy also said he was "quite confident" that Amazon would make use of its remaining capacity as sales grow.

Additionally, Jassy promised to return Amazon to a "healthy level of profitability" by prioritizing expense-reduction initiatives. "We have effectively lowered our cost structure before and I have high confidence that we'll get back on track as we work through these incredibly unusual past two years," he said. 

Now what

Inflation has also forced consumers to pull back on discretionary purchases. But consumer spending grew by 3.1% in the first quarter, according to a report by the U.S. Department of Commerce released on Thursday. That's up from a prior estimate of 2.7%. Stronger consumer-spending figures bode well for Amazon, which accounts for roughly half of all online retail sales in the U.S.

Moreover, if Jassy can deliver on his promise to rein in the company's costs, Amazon's profits -- and, by extension, its stock price -- could rebound faster than the market currently expects. That could lead to handsome gains for investors who buy shares today. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Joe Tenebruso has the following options: long January 2024 $2,000 calls on Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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