Buy Or Sell Amazon.com Stock?

Here’s what immediately stands out: Amazon stock gained only 5% in 2025, dramatically trailing the S&P 500’s over 16% return. For a mega-cap tech stock that investors typically expect to lead the market—not lag it—this is quite a disappointment.

The start of 2026 has been better, with the stock up 4% in the first week, thanks to a partnership with Aumovio for AWS integration in self-driving trucks. But does one good week erase a year of underperformance?

The $240 Question! So is Amazon a buy at current levels? We think there’s limited upside potential here, and it comes down to valuation.

Why? Because when you look at what you’re actually paying for Amazon stock today, the numbers tell a concerning story.

Before we dive into the details, if you seek an upside with less volatility than holding an individual stock like AMZN, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 105% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. Separately, see – How Can Google Stock Fall?

Image by Finn from Pixabay

What Are You Really Paying For?

Let’s break down what Amazon costs relative to what it produces, comparing it to the broader market:

• Price-to-Sales ratio: 3.8x versus 3.3x for the S&P 500
• Price-to-Free Cash Flow ratio: A staggering 190.4x compared to just 21.2x for the S&P 500
• Price-to-Earnings ratio: 36.4x versus 23.8x for the benchmark

Our dashboard on Amazon’s Valuation Ratios has more details.

That P/FCF ratio is particularly striking—you’re paying nine times more per dollar of free cash flow than the average S&P 500 company. That’s a hefty premium that needs serious justification.

But Isn’t Amazon Growing Strongly?

Yes, and this is where it gets interesting. Amazon’s revenue growth has been solid:

• 11.3% average annual growth over the past three years (double the S&P 500’s 5.6%)
• 10.9% growth from $604 billion to $670 billion over the last 12 months
• The most recent quarter showed 13.3% growth to $168 billion

So the growth story checks out. But here’s the critical question: Is 11% revenue growth enough to justify a 190x free cash flow multiple and a 36x earnings multiple?

What About Profitability?

This is where the picture becomes less impressive. Amazon’s profit margins are actually just moderate relative to the market:

• Operating margin: 11.4% versus 18.8% for the S&P 500
• Operating Cash Flow margin: 18.1% versus 20.5% for the benchmark
• Net Income margin: 10.5% versus 13.1% for the S&P 500

Amazon generates $76 billion in operating income on $670 billion in revenue. That’s respectable, but it’s not the kind of margin profile that typically commands such elevated valuation multiples. Compare this to Amazon’s peers that trade at similar multiples but often boast 30-40% operating margins.

Is the Balance Sheet Strong Enough to Justify the Premium?

The balance sheet is undeniably excellent—this is one area where Amazon truly shines:

• Debt-to-Equity ratio: Just 5.2% versus 20.2% for the S&P 500 (lower is better)
• Cash-to-Assets ratio: A healthy 13.7% versus 7.2% for the benchmark
• $93 billion in cash against $134 billion in debt

So Amazon has plenty of financial flexibility. But does financial strength alone warrant paying 36x earnings when the company generates below-market profit margins?

How Does Amazon Handle Market Stress?

The downturn resilience data reveal a mixed track record:

• Inflation Shock (2022): Amazon plummeted 56.1% from its July 2021 peak to December 2022—more than double the S&P 500’s 25.4% decline. It took until April 2024 to fully recover—nearly three years.
• COVID Pandemic (2020): Amazon fell 22.7%, actually outperforming the S&P 500’s 33.9% drop. It recovered within two months—impressive.
• Global Financial Crisis (2008): Amazon dropped 65.3% versus 56.8% for the S&P 500, but recovered within one year.
  What’s the pattern here? Amazon can be significantly more volatile than the market during downturns, though its recovery speed varies by crisis type.

Also, check out our take on – What’s The Downside Risk For Amazon Stock?

So What’s the Verdict?

Let’s synthesize the findings:

• Growth: Strong ✓
• Profitability: Moderate
• Financial Stability: Very Strong ✓
• Downturn Resilience: Moderate
• Overall Performance: Strong

Here’s the crucial insight: Amazon’s strong overall performance is already fully reflected—perhaps over-reflected—in its valuation. When you’re paying 36x earnings and a whopping 190x free cash flow for a company with below-market profit margins, you’re not getting a discount. You’re paying for perfection and then some.

Could We Be Wrong About This?

Absolutely. Investors might justify an even higher premium if Amazon’s AI investments through AWS accelerate dramatically. The company’s infrastructure spending—projected at $125 billion in 2025 and increasing in 2026—could drive explosive profitability if AWS captures a dominant share of AI workloads. Look at our take on What’s In Store For Amazon Stock? for more details on what may go well for Amazon in 2026.

But here’s the risk: you’re essentially betting that Amazon’s margins will expand significantly and revenue growth will accelerate from current levels. That’s a double bet that needs to work out to justify current prices.

The Bottom Line

Amazon is undoubtedly a high-quality company with strong growth, an impeccable balance sheet, and dominant market positions in e-commerce and cloud computing. But quality doesn’t always equal opportunity.

At $240, with valuation multiples stretching well above the market and profit margins sitting below it, we see limited upside potential from a pure valuation perspective. The stock would need either significant multiple expansion (already stretched) or a dramatic acceleration in profitability (possible but uncertain) to deliver strong returns from current levels.

For investors focused on valuation fundamentals versus speculation on future potential, the risk-reward at these levels doesn’t look compelling. Sometimes the best investment decision is patience—waiting for a better entry point rather than chasing momentum. Also, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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