Our Discounted Cash Flow (DCF) analysis suggests Amazon.com is undervalued by 17.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

For profitable companies like Amazon.com, the Price-to-Earnings (PE) ratio is often the preferred valuation metric because it links the company’s current share price to its actual earnings power. Investors use the PE ratio to gauge how much they are paying for each dollar of earnings. This makes it a straightforward way to compare companies in the same industry.

Growth expectations and perceived risks play a big role in determining what counts as a “normal” or “fair” PE ratio. Companies with stronger projected earnings growth or lower risk levels tend to justify higher PE ratios. More risky or slower-growing businesses usually command a discount.

Currently, Amazon.com trades at a PE ratio of 33.19x. This is higher than the average Multiline Retail industry PE of 21.90x, but lower than the average among its peer group at 46.07x. To provide a more tailored benchmark, Simply Wall St calculates a proprietary “Fair Ratio” based on a range of factors specific to Amazon.com, including its earnings growth, profit margins, industry, market cap, and business risks. For Amazon, this Fair Ratio comes in at 40.63x.

Unlike industry or peer comparisons that might overlook company-specific strengths and risks, the Simply Wall St Fair Ratio delivers a more accurate view of what Amazon’s PE should be. By weighing all relevant factors together, it accounts for why Amazon might be worth more or less than peers or the broader sector.

With Amazon’s actual PE ratio at 33.19x and the Fair Ratio at 40.63x, the current valuation looks attractive. This suggests the stock is trading below its fair value on an earnings basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a clear, user-driven story—your take on a company’s future—that connects your assumptions about revenue, profit margins, and fair value with a forecasted financial outcome. Instead of just running the numbers, you can articulate your perspective about Amazon.com’s strengths, industry outlook, or competitive position, then instantly see what that means for fair value and potential returns.

Narratives bridge the gap between a business’s story and the math behind valuation, helping you see how your convictions link directly to a projected price. With Narratives on Simply Wall St’s Community page (used by millions of investors), anyone can create, explore, and compare different outlooks. As new information comes in, such as earnings, news, or market trends, Narratives update dynamically, keeping you current and empowering smarter decisions about when to buy, hold, or sell by directly comparing fair value to price.

For example, the most bearish Amazon.com Narrative currently estimates fair value at $151, reflecting caution about global trade and cloud growth. The most bullish Narrative sees a $434 fair value, factoring in rapid AI adoption and aggressive earnings expansion. Your Narrative shapes your investment logic and makes your next step much clearer.

For Amazon.com, however, we’ll make it really easy for you with previews of two leading Amazon.com Narratives:

🐂 Amazon.com Bull Case

Fair value: $222.55

Current price is undervalued by approximately -1.2%

Revenue growth rate: 15.19%

• Amazon’s true earnings power is being masked by reinvestment. Core businesses like AWS, Advertising, and its third-party seller ecosystem are driving robust long-term growth and profitability.

• The company’s aggressive global expansion, operational optimization, and dominance in online retail and cloud services are seen as sustainable competitive advantages.

• Continued heavy investment is expected to suppress near-term free cash flows, but is viewed as the right move for maximizing the large opportunities ahead.

🐻 Amazon.com Bear Case

Fair value: $151.21

Current price is overvalued by approximately 45.4%

Revenue growth rate: 7.2%

• Amazon’s retail business faces limits to further expansion in the U.S. and rising competition. Maturity is expected to slow growth despite ongoing improvements in advertising and AWS segments.

• High capital intensity and slowing sales-to-capital ratios mean larger investments are required for only moderate incremental growth, putting pressure on profit margins and returns.

• Risks include trade headwinds, especially from deteriorating U.S.-China relations, and stock-based compensation potentially misaligning incentives as the company shifts focus from growth to profitability.

Do you think there’s more to the story for Amazon.com? Create your own Narrative to let the Community know!

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.

Companies discussed in this article include AMZN.

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