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Investors are always looking for the next big trend. Yet, such an approach is never easy to execute as it requires making correct predictions.

Alternatively, investors can search for established trends that can continue for the next few years (or decades). Examples of these proven trends are e-commerce and cloud computing.

A major technology company that’s surfing both the e-commerce and cloud computing waves is Amazon (NASDAQ: AMZN). Better still, the stock is available at a cheap valuation.

Image source: Getty Images.

Amazon is positioned to deliver solid results

There are plenty of reasons to like Amazon.

Let’s begin with its diversified business model. Amazon is the clear leader in the U.S. e-commerce industry thanks to its market share of around 38%. Its relentless focus on customer delight means it will likely sustain (or grow) that market share in the coming years.

Besides its consumer-facing business, Amazon is a leading cloud computing player, with around one-third of the global market share via Amazon Web Services. It also owns a small but rapidly expanding advertising business. With a diversified operating model, Amazon can reduce the volatility of its revenue and profits while having plenty of opportunities to reinvest its earnings to propel growth.

And while Amazon is already a leader in the e-commerce and cloud computing industry, it has plenty of room to grow as these industries expand in the coming years. For instance, Amazon can ride on the expansion of e-commerce penetration in the U.S. (15.4%) and globally. The opportunity in cloud computing is equally massive (if not bigger) as Amazon rides major tailwinds like ongoing migration to the cloud and the rise of artificial intelligence adoption.

The only downside is that Amazon’s success will likely lead to more scrutiny by regulators. For example, the Federal Trade Commission (FTC) recently sued Amazon for allegedly using unfair strategies to maintain its monopolistic position. This is a risk that investors should monitor, yet it confirms Amazon’s accomplishment in the e-commerce industry.

Amazon stock is cheap

It’s not difficult to see that Amazon has a good business model and bright prospects. But what’s even more exciting is that the stock is now available at a reasonably low valuation.

As of this writing, the stock is down by about 25% from its peak of $186 amid the headwinds from the reopening of global economies post-pandemic and a generally weak macro environment. In fact, the stock price more than halved at one point to $81 but has since recovered after Amazon delivered reasonably good quarterly results . For example, revenue and operating profit rose 13% and 348% in the third quarter of 2023.

Still, despite the recovery in price, Amazon’s stock trades at an appealing valuation. For perspective, the stock has a price-to-sales (P/S) ratio of 2.6, lower than its five-year average of 3.4. Comparatively, Shopify has a P/S ratio of 11.9.

The bears believe that Amazon’s low valuation is justifiable since the company is unlikely to resume its historically high growth rates — thanks to its gigantic size and other potential risks like the investigation by the FTC.

But for the bulls convinced of Amazon’s long-term growth prospects and the confidence in management’s ability to deal with potential threats, Amazon’s stock looks like a bargain.

So, why should investors bother?

Amazon is one of the best technology companies on the planet, and it is positioned to ride the established trends of e-commerce and cloud computing.

While there are potential risks, the upsides outweigh the downsides. And with the stock trading at a discount to its five-year average, investors are getting a good deal today.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.

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