For profitable companies, the P/E ratio is a useful yardstick because it links what you pay for each share to the earnings that business is currently generating. It gives you a quick sense of how many dollars investors are willing to pay today for one dollar of earnings.

What counts as a “normal” P/E depends on how the market views a company’s growth prospects and risk. Higher expected earnings growth or lower perceived risk can support a higher P/E, while slower growth or higher uncertainty tends to point to a lower multiple.

Amazon.com currently trades on a P/E of 32.6x. That sits above the Multiline Retail industry average of 19.4x but below the peer group average of 35.4x. To go a step further, Simply Wall St uses a proprietary “Fair Ratio” framework, which estimates what P/E might make sense for a company given factors like its earnings growth profile, industry, profit margins, market cap and key risks.

This Fair Ratio for Amazon.com is 40.5x, which is higher than the current 32.6x P/E. On this metric, the shares look undervalued relative to what the model suggests as a fair earnings multiple.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1454 companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, where you set out your story for Amazon.com, link it to a financial forecast and estimated fair value, then compare that fair value to the current share price, all within an easy Community page tool that updates as new news or earnings arrive. This can reflect very different views, such as one Narrative valuing Amazon.com at US$450 per share based on an AI heavy investment story and another closer to US$217.95 that assumes more moderate growth and margins.

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

🐂 Amazon.com Bull Case

Fair value: US$234.75 per share

Implied discount to this fair value: 0.7%

Revenue growth assumption: 13.6%

• Views recent share price moves after 2Q25 as an opportunity, with a detailed review of Amazon’s e commerce, AWS, advertising and devices footprint.

• Highlights a long list of recent AWS customer wins, product launches and AI related initiatives across cloud, robotics and satellite connectivity.

• Sets out explicit multi year price projections based on growth rate assumptions, while acknowledging they do not fully capture potential upside from pipeline projects.

🐻 Amazon.com Bear Case

Fair value: US$227.14 per share

Implied premium to this fair value: 2.6%

Revenue growth assumption: 9%

• Splits Amazon into two sides: a higher margin group made up of AWS, advertising and subscriptions, and a lower margin, high volume retail and third party seller operation.

• Assumes the higher margin segments carry stronger growth and profitability, while the retail engine grows at a steadier pace with limited margin expansion.

• Brings those strands together into a view of future revenues and earnings, and uses that to arrive at a fair value that sits close to the current share price.

Between these two previews you can see how different investors can look at the same company, use different growth and margin assumptions and end up with fair values that bracket where Amazon.com trades today. That contrast can be a useful prompt to review your own expectations before you decide what to do with the stock.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there’s more to the story for Amazon.com? Head over to our Community to see what others are saying!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com