Amazon.com (AMZN) Could Be 43% Undervalued After LaFontaine Joins Amazon Autos

Amazon.com (AMZN) is back in focus after LaFontaine Automotive Group moved more than 40 dealerships onto Amazon Autos, the company’s online vehicle marketplace. The platform lets customers browse, finance, trade in, and purchase cars digitally.

See our latest analysis for Amazon.com.

Even with the 1-day share price return declining 2.09% to US$272.27 and a softer 7-day share price return down 1.86%, Amazon.com is still showing firm momentum. It has a 30-day share price return of 10.98%, a year to date share price return of 20.21%, and a 1-year total shareholder return of 22.94%. This reflects how news such as the LaFontaine Automotive deal and strong recent earnings are feeding into changing views on both its growth potential and risk profile.

If you are looking beyond Amazon.com to other AI driven opportunities, this is a good moment to see what stands out in the 57 AI infrastructure stocks

Amazon.com now sits at roughly US$272 a share with earnings, AI infrastructure spend, and deals like LaFontaine’s all in the mix. The core business looks powerful. Is the stock price as strong as the story?

Most Popular Narrative: 42.7% Undervalued

At a last close of $272.27, the most followed narrative on Amazon.com points to a fair value of $475.09. That gap is built on a view that the higher margin parts of the business will carry more weight over time.

Amazon is a company of two sides: a high tech, high margin side, comprising its AWS, Advertising and subscription services segments, and its more traditionally known low margin, high volume stores and third-party seller segments. These two sides form a cohesive whole. The Amazon online store motivates customers to purchase subscriptions and hosts its advertising. AWS underpins the functioning of the online store, but is also easy to integrate with for Amazon's many third-party sellers, encouraging adoption. However, the different sides have different growth prospects. The high margin side will continue to experience high (15%+ annual) growth, while maintaining its relatively high profit margin (~30-40%), leading to strong profit expansion for Amazon as a whole. Whereas the low margin, high volume side of Amazon will continue to grow at its fairly steady pace (5-10% annually) and continue to be limited by its low profit margin (<5%). Despite that, Amazon's unique business mix will result in overall yearly revenue gains of ~9% and net profit margins of ~15%, leading to revenues of ~$1T and earnings of ~$150B in 5 years.

Read the complete narrative.

Want to see how this narrative connects AWS, advertising and subscriptions into one valuation story? The fair value rests on a specific growth mix and a punchy profit multiple. Curious which side of Amazon.com, high margin or low margin, does the heavy lifting in those assumptions.

Result: Fair Value of $475.09 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this Amazon.com story could be challenged if AWS or AI related spending fails to convert into profits, or if retail growth slows further.

Find out about the key risks to this Amazon.com narrative.

Next Steps

Sentiment around Amazon.com is clearly split, with risks and rewards both on the table, so it makes sense to move quickly and review the evidence yourself. To see what stands out most clearly in the current data, take a closer look at the 3 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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