AMZN’s Risky Bet: Is the E-Commerce Giant’s Stock Too Pricey for Its Own Good?

Stock Market

Amazon (NASDAQ:AMZN) CEO Jeff Bezon just became the world’s richest person, and people who bought AMZN stock a year ago are also doing quite well now. However, this doesn’t mean Amazon’s shareholders are guaranteed a continued rally. Furthermore, cautious investors should think about Amazon’s valuation.

Besides, Amazon’s new artificial intelligence chatbot isn’t perfect, and the company’s Prime subscription service may have to face fierce competition in the near future. All in all, Amazon stock is still worth owning, but there’s no need to load the boat at the current price.

AMZN Stock Looks Too Richly Valued

As AMZN stock heads for $200, momentum-focused traders might get excited, but value-conscious investors should think twice. After all, it’s worrisome that Amazon’s GAAP trailing 12-month price-to-earnings ratio is around 60x. For reference, the sector median P/E ratio is approximately 18x.

Sure, Amazon is an e-commerce juggernaut and the company’s Prime service is quite popular. But then, the market certainly knows this and has probably already priced in Amazon’s expected future earnings.

Amazon doesn’t hold a total monopoly with its Prime service. Besides Walmart (NYSE:WMT), Amazon has to contend with Target (NYSE:TGT).

In fact, Target plans to introduce a membership/loyalty program called Target Circle 360 on April 7. According to Retail Dive, the Target Circle 360 program “will offer unlimited free same-day delivery for orders $35 and up, along with free two-day shipping.”

Thus, it sounds like Target could give Amazon a run for its money and steal some of Prime’s market share.

Amazon’s New AI Chatbot Isn’t Perfect

In other news, Amazon has a new AI-powered shopping-assistant chatbot called Rufus. I found two reviews of Rufus, and they make it clear that Amazon’s new chatbot isn’t perfect.

A reviewer from Yahoo! Finance discovered that Rufus may get confused or provide irrelevant/off-topic responses. Meanwhile, a TechCrunch reviewer also received not-quite-relevant responses from Rufus and found that the chatbot “struggled with nuance.”

Remember, just because Amazon is great in some areas, doesn’t mean that the company can immediately dominate any field of endeavor. Like any other company, Amazon can fail and flail. Rufus clearly still needs adjustments, and it might not turn out to be a blockbuster success for Amazon.

AMZN Stock: Buy It Slowly or Not at All

Don’t get the wrong idea. Amazon makes boatloads of money from Prime and from e-commerce in general. So, Amazon stock could still rally even from its current price.

The problem is that Amazon is richly valued. Hence, the risk-to-reward scenario isn’t as favorable as it was when AMZN stock was cheaper. Therefore, it’s fine to buy a few Amazon shares. Or, if you’re very value-conscious, you don’t have to buy anything at all.

On the date of publication, David Moadel 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 Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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