Does Amazon's latest healthcare move make the stock a buy?

Amazon has been trying to grow in the area of healthcare over the past couple of years.

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

It's clear that Amazon (NASDAQ: AMZN) wants to make its mark in the world of healthcare. The e-commerce giant opened a pharmacy service two years ago. And the company's trying to get a foothold in telemedicine, though it hasn't been easy. Amazon is shuttering its own service, Amazon Care, and is in the process of buying 1Life Healthcare (NASDAQ: ONEM), better known as One Medical -- a provider of in-person and virtual care.

But Amazon isn't stopping there. Its latest news is the creation of Amazon Clinic. This is an online service that lets you connect with clinicians for a variety of minor problems -- and get answers and prescriptions.

Let's take a closer look.

An El Dorado

Telemedicine represents a sort of El Dorado for players and potential players. The U.S. market is forecast to grow at a compound annual growth rate of more than 15% to nearly $25.9 billion by 2027, according to Polaris Market Research. Competition is high. And even a company with the resources of Amazon probably will have trouble beating a leader like Teladoc Health.

But Amazon's latest move may offer it an advantage in a niche market. Teladoc and others sell complete healthcare plans to corporations or individuals. But Amazon Clinic isn't a plan: It works like an online clinic -- and anyone can use it.

If you've ever spent hours waiting at a walk-in clinic, you'll probably understand the potential of Amazon's latest venture in healthcare. Instead of going to an in-person clinic if you have a minor problem like sinusitis or pink eye, you fill out a questionnaire about your symptoms on Amazon. Then it connects you with a medical professional who will send you a treatment plan.

The service isn't covered by insurance. The price varies depending on the state you live in and the clinic you choose -- but as an example, a consultation for pink eye costs $30 to $35 at a Florida clinic on the platform.

Amazon Clinic is sure to be an easier alternative than waiting around at a crowded walk-in clinic for treatment. So the service does have potential to fill a need -- and become successful.

Does this make Amazon a buy? First, let's answer another question: Will Amazon Clinic make Amazon a major player in healthcare? That's unlikely.

A niche market

Even though this looks like a positive step for Amazon, we're talking about a niche. The revenue opportunity is limited. And the business won't necessarily drive patients to Amazon Pharmacy -- the prescriptions can be filled anywhere.

So, I wouldn't buy Amazon shares for this move. I wouldn't even buy shares for the company's plan to grow in the healthcare market, because it's still way too early to predict whether Amazon can become a leader.

The company has already stumbled twice. As I mentioned earlier, it's closing Amazon Care as of the end of this year. And last year, it ended a healthcare joint venture with Berkshire Hathaway and JPMorgan Chase.

But note that I actually would buy shares of Amazon today. Rather than for its healthcare efforts, I'd buy them for its long-term growth potential in e-commerce and cloud computing.

Right now, higher inflation and general economic woes are weighing on those businesses. But these are temporary problems. Over the long term, Amazon has the market share and resources to thrive.

Today, the shares are trading at 1.9 times sales. That's around the lowest level by this measure since about 2015.

Amazon's ambitions in healthcare are something to watch. But the company's two main businesses are what make the stock a steal at today's levels. 

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

Adria Cimino has positions in Amazon. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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, Berkshire Hathaway (B shares), JPMorgan Chase, and Teladoc Health. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon and Berkshire Hathaway (B shares). 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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