The Transurban Group (ASX: TCL) share price is stuck in reverse today after it was downgraded by a top broker.

Shares in the toll road operator skidded 1.94% to $14.41 in the last hour of trade on Monday. In contrast, the S&P/ASX 200 Index (ASX: XJO) recovered some of its early losses to trade 0.47% lower at the time of writing.

The underperformance of the Transurban share price comes after it zoomed ahead by around 20% since late January.

Transurban share price offers little inflation protection

Its shares have been well supported in this environment due to its relatively dependable earnings and dividends. Some have also jumped into the shares for its inflation protection properties.

But Transurban may not offer as much protection as investors might believe, according to Credit Suisse.

The broker downgraded the Transurban share price to “neutral” from “outperform”, noting the correlation between the group’s tolls and inflation is weak.

Outside the comfort zone

This is particularly in a higher consumer price index (CPI) environment where Atlas Arteria Group (ASX: ALX) offers a better inflation hedge, according to the broker.

Credit Suisse said in a note released today:

In a CPI range of 0-4%, there is only a 33% link of toll prices to CPI, and a 60% link when CPI is greater than 4%. At Atlas Arteria’s APRR toll network in France, the tolls increase at 70% of CPI. The toll formulas for Transurban’s roads tend to be optimized for CPI at 1-2% and are less optimal in 2-5% CPI range.

Rising debt costs drags on Transurban’s share price

Meanwhile, rising interest rates will put the squeeze on the company’s earnings too. The average cost of its Australian debt is 4%. When the debt is refinanced, it will likely rise, noted Credit Suisse.

Around 12% of Transurban’s debt will mature in FY23 with a similar amount due in the following three years.

While the broker increased its revenue forecast for the Transurban share price by 1.3% and 1.8% in FY23 and FY24 respectively, it cut its free cash flow expectations due to the rising cost of debt. This also means lower dividend per share (DPS) in the coming years.

Dividend pressure building

The broker explained:

We assume maturing debt is refinanced at a 5.0% rate. This raised debt cost by ~4%, ~10%, and 15% in FY23, FY24, and FY25, respectively. Free cash flow (excluding capital releases) and DPS forecasts fall 1.4% and 2.6% in FY24 and FY25, respectively.

Credit Suisse is telling investors to consider taking profits after the strong run in the Transurban share price. Its 12-month price target on the shares was cut to $13.60 from $14.60 a share.

The post Transurban share price hit by broker downgrade appeared first on The Motley Fool Australia.

More reading

• Here are the 3 most traded ASX 200 shares on Monday
• Do Novonix shares pay dividends?
• What to expect from the RBA interest rate decision this week
• ASX 200 midday update: Magellan smashed, Liontown signs Tesla deal
• Could the Core Lithium share price be set to take off again in June?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One month ago today, on 6 May, the first cracks began to emerge in Terra’s stablecoin, TerraUSD (CRYPTO: UST), and the token that was meant to help it remain pegged to US$1, Terra (CRYPTO: LUNA).

At the time the algorithmic stablecoin, UST, was among the leading tokens pegged to the US dollar. And Luna had a market cap of some US$28 billion.

By 12 May the collapse of the tokens and the blockchain that supports them was well underway. UST was down 70% and Luna had dropped 97%.

With the cryptos entering what’s called a ‘death spiral’ as crucial investor confidence evaporated, things only got worse from there.

Unable to rescue the original tokens, Terra co-founder Do Kwon and his supporters have pressed through with the launch of a new Terra blockchain, supported by two new tokens.

Namely TerraClassicUSD (CRYPTO: USTC) and Luna 2.0 which is called, well, Terra (CRYPTO: LUNA). Rather than rebrand the new Luna 2.0, the company changed the name of the original to Terra Classic (CRYPTO: LUNC).

UST itself is no more, and its blockchain has been officially halted. As for LUNC? It’s gone from US$86 this time last month to 0.0081 US cents.

Can Terra’s Luna 2.0 avoid another ‘death spiral’

As part of the rescue plan, Terra ‘airdropped’ the new Luna tokens to existing holders.

But according to Thomas Dunleavy, senior analyst at crypto research firm Messari (quoted by Bloomberg):

The airdrop was really poorly structured. It rewarded equity holders – LUNA holders – over savers or bond holders – Anchor depositors or UST holders. Any network in crypto is built on trust, by not only users but also builders who commit their time and capital to grow the network.

So, can Terra’s Luna 2.0 avoid a repeat of what happened to 1.0?

Time will tell.

But it’s not off to a great start.

According to data from CoinMarketCap, the Terra Luna 2.0 price currently stands at US$5.11. That’s down 74% from the US$19.54 the token was worth on 28 May.

The post Can Terra’s Luna 2.0 avoid another ‘death spiral’ appeared first on The Motley Fool Australia.

More reading

• Why did crypto prices get massacred in May?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The potential for share price growth in tandem with generous dividends is a rare proposition to find in the share market. Yet, one broker believes that is exactly what the Accent Group Ltd (ASX: AX1) share price could be for investors.

Despite earnings slipping in the second half of last year, the team at Bell Potter believes the ASX-listed footwear retailer has a leg up on the competition. While Accent has returned 163% (including dividends) over the past five years, there could be more still on the table.

Let’s take a closer look at the case being made by the Australian broker.

Big opportunity for the Accent share price?

To set the scene, we have shares in Australia’s eleventh-largest listed retail company down 52% from a year ago. Concurrently, Accent has managed to grow its total revenue by 23% for the trailing 12-month period — surpassing $1 billion in revenue for the first time in its history.

The disposal of aged inventory, as a result of COVID-19 lockdowns, took a toll on the company’s bottom line in the first half of FY22. Specifically, net profit after tax (NPAT) tumbled 72% to $14.76 million for the six-month timeframe.

However, analysts at Bell Potter have not been repelled by the recent results. Instead, the team sees the current Accent share price as buying opportunity.

Importantly, the footwear company has been building upon the fundamentals of the business. In the first half, Accent opened 104 new stores. The company also recorded digital growth of 47.9% and signed a 10-year distribution agreement with Reebok.

Additionally, Bell Potter’s confidence is boosted by Accent’s ~30% market share in the Australian footwear market. That industry segment is currently worth $3 billion. The analysts also think the Aussie company can make reasonable headway in the $5 billion apparel market.

For these reasons, the broker is tipping a $2.20 price target on Accent shares, suggesting a 65% upside from here. Sweetening the company’s potential is an estimated 5.8 cents per share in fully franked dividends in FY2022, projected to increase to 10.7 cents per share in FY2023.

The Accent share price is currently trading at $1.33, representing a dividend yield of 6%.

The post Top broker tips Accent share price to deliver 65% upside AND juicy dividends appeared first on The Motley Fool Australia.

More reading

• 2 excellent ASX dividend shares that experts rate as buys
• 2 cheap ASX shares to buy right now: experts
• Something’s afoot! Why is the Accent share price leaping 6% today?
• 3 ASX All Ordinaries shares having a stellar run on Wednesday

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Northern Star Resources Ltd (ASX: NST) share price is tumbling during Monday afternoon trade.

At the time of writing, the gold miner’s shares are swapping hands at $8.59, down 2.28%.

Other fellow gold miners have also fallen, with Newcrest Mining Ltd (ASX: NCM) shares fetching at $24.43, down 0.85%, and Evolution Mining Ltd (ASX: EVN) shares trading at $3.715 apiece, down 1.72%.

What’s driving Northern Star shares lower?

While the price of gold has stabilised for now, investors are continuing to offload Northern Star shares.

This comes after a broader selloff across the S&P/ASX 200 Index (ASX: XJO) today.

In particular, the S&P/ASX 300 Metals and Mining Industry (ASX: XMM) is shedding 0.64% to 6,139.8 points. The sector contains the top 300 ASX companies that are involved with gold, steel and precious metals.

A volatile week across global markets has failed to spark up the value of the precious yellow metal. During times of uncertainty and wild price swings, gold is traditionally seen as a safe haven for investors.

The Russian war in Ukraine, elevated borrowing costs, ongoing supply disruptions and high commodity prices are a few factors.

However, the latest United States jobs report startled markets as more than 390,000 jobs were added to the economy. The robust figures raised worries that there could be a further squeeze on monetary policy by the Federal Reserve.

While additional rate hikes could be on the cards for the second half of 2022, this would drive investors away from gold.

Furthermore, investors are waiting for the release of the May consumer price index report later this week. This provides a clear indicator of whether inflation has peaked in the United States.

The spot price of gold is currently trading under US$1,860 per ounce.

About the Northern Star share price

Over the last 12 months, the Northern Star share price is down by around 21%, with year-to-date 8% lower.

On valuation grounds, Northern Star commands a market capitalisation of approximately $10.24 billion.

The post Why is the Northern Star share price having such a lacklustre start to the week? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Where is the Northern Star share price headed in June?
• 5 things to watch on the ASX 200 on Wednesday
• Why has the Northern Star share price fallen 10% in a month
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Aaron Teboneras has positions in Northern Star Resources Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Could the Fortescue Metals Group Limited (ASX: FMG) share price be attractive enough to load up on?

Fortescue is one of the biggest iron ore miners in the world along with Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).

Iron ore is one of Australia’s biggest exports. At the right price, it can generate billions of dollars for the ASX mining shares.

While BHP and Rio Tinto generate sizeable profits from commodities other than iron ore, Fortescue has been heavily reliant on iron ore earnings.

Therefore, what happens with the iron ore price can have a large impact on investor sentiment about the Fortescue share price and its profitability.

What’s happening with the iron ore price?

China is the world’s biggest purchaser of iron ore. So demand from that country can have a major impact on the iron ore price.

CommSec noted this morning that the iron ore futures price was up 1.5% to US$144.40 per tonne. It also noted that over the week the iron ore price had gone up 8.2%.

Perhaps unsurprisingly, the Fortescue share price has more than 8% since 27 May 2022.

It has been reported by various news organisations, including the ABC, that Shanghai’s lockdown has finally lifted. GDP (gross domestic product) growth in the Asian superpower is expected to slow this year.

According to the media, including the ABC, “China’s Premier Li Keqiang held an emergency meeting with thousands of representatives from local governments and companies, warning that China was facing a much worse economic situation today than in 2020 when the pandemic began.”

It is possible that the Chinese government could decide to invest for growth and reignite the Chinese economy. This could be useful for the iron ore price, profit, and the Fortescue share price.

My views on the Fortescue share price

There’s no doubt that Fortescue is currently benefiting from the relative strength of the iron ore price. With Fortescue’s commitment to paying dividends, shareholders could continue to see quite large dividends over the next year.

However, with a cyclical business like Fortescue, I think that it’s better to buy a resource business when the commodity price is lower. When iron ore is lower, it’s likely to mean that the Fortescue share price would be lower as well.

How much lower? Looking at the last 12 months, I think a Fortescue share price under $18 would start to look interesting again. However, part of the reason why I’d consider Fortescue at that price would be the promising future of the green division. Fortescue Future Industries (FFI) is looking to build a global portfolio of green hydrogen production facilities. Other areas of FFI include a high-performance battery division.

However, the Fortescue share price would need to get back to $16 or even $15 for me to ‘load up’ on the ASX mining share. This would give a good margin of safety, in my opinion.

The post Is now the time to load up on Fortescue shares? appeared first on The Motley Fool Australia.

More reading

• These were the best performing ASX 200 shares last week
• Why Altium, Fortescue, PeopleIn, and REA shares are storming higher
• Why are the ASX 200 iron ore giants outperforming on Friday?
• ASX 200 midday update: Healius disappoints, BHP and Fortescue storm higher
• Is the Fortescue share price predicted to rise in June?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for dividend shares with big yields, then you may want to look at the two listed below.

Here’s why analysts rate these ASX dividend shares as buys:

Dexus Industria REIT (ASX: DXI)

The first ASX dividend share that has been rated as a buy is Dexus Industria.

It is an industrial and office focused property company, formerly known as APN Industria, that owns interests in office and industrial properties.

Moelis is bullish on Dexus Industria and recently upgraded its shares to a buy rating with a $3.54 price target. It appears to see the recent weakness in its share price as a buying opportunity.

And while the broker expects inflation to weigh on its earnings a touch, it is still expecting big dividends in the near term.

For example, Moelis is forecasting dividends per share of 17.3 cents in FY 2022 and 17.6 cents in FY 2023. Based on the latest Dexus Industria share price of $3.12, this will mean yields of 5.5% and 5.7%, respectively.

South32 Ltd (ASX: S32)

Another ASX dividend share that is expected to provide investors with big dividends in the near term is South32.

This is being underpinned by the mining giant’s exposure to a number of commodities which are in demand and commanding high prices. This includes green metals such as aluminium.

Goldman Sachs is very positive on South32 and has a conviction buy rating and $5.70 price target on its shares. Its analysts are expecting the company’s strong free cash flow generation to underpin fully franked dividends per share of 27.5 US cents in FY 2022 and 47.3 US cents in FY 2023.

Based on the current South32 share price of $5.09 and the latest exchange rates, this will mean very big yields of 7.5% and 12.9%, respectively.

The post Brokers name 2 ASX dividend shares to buy with big yields appeared first on The Motley Fool Australia.

More reading

• These were the best performing ASX 200 shares last week
• Here are the 3 most traded ASX 200 shares on Friday
• Experts name the ASX 200 dividend shares to buy with big fully franked yields
• UBS warns of more downgrades for ASX 200 shares… but not all
• How might ‘green premiums’ impact the value of ASX mining shares?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) looks set to start the week with a decline. In afternoon trade, the benchmark index is down 0.3% to 7,216.6 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

A2 Milk Company Ltd (ASX: A2M)

The A2 Milk share price is down 2.5% to $4.64. This decline appears to have been driven by news that Abbott Nutrition has restarted baby formula production at its reopened Michigan plant in the United States. Any hopes that A2 Milk would be able to take advantage of supply issues in the United States now appear to be evaporating.

Appen Ltd (ASX: APX)

The Appen share price is down 3.5% to $6.18. Investors have been selling the artificial intelligence data services company’s shares amid news that it will be kicked out of the ASX 200 index at the next rebalance. In addition, weakness in the tech sector and a broker downgrade from Citi have weighed on Appen’s shares today.

Magellan Financial Group Ltd (ASX: MFG)

The Magellan share price is down 13% to $13.03. This fund manager’s shares have been sold off for a couple of reasons. The first is the release of a monthly update which revealed another sizeable decline in funds under management. The other is news that S&P Dow Jones Indices has dumped Magellan from the illustrious ASX 100 index.

Tyro Payments Ltd (ASX: TYR)

The Tyro Payments share price is down over 7% to 94 cents. This payments company’s shares have come under pressure on Monday after it was also kicked out of the ASX 200 index. When a share drops out of a major index it can lead to increased selling from index funds that track the index and fund managers with strict investment mandates.

The post Why A2 Milk, Appen, Magellan, and Tyro shares are dropping today appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Magellan smashed, Liontown signs Tesla deal
• Why is the Magellan share price tumbling 10% on Monday?
• Appen and PolyNovo tumble after being kicked out of the ASX 200 along with these shares
• These are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd and Tyro Payments. The Motley Fool Australia has recommended A2 Milk and Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Bitcoin (CRYPTO: BTC) miners, not unlike gold prospectors of yesteryear, get rewarded for their efforts via payments in Bitcoin.

You can see then how rocketing crypto prices last year drew in a large wave of new miners.

The world’s top token by market cap commenced trading in 2021 for just under US$32,000, right around the current price of US$31,206.

But it was the meteoric increase in the price over the following months, which saw Bitcoin hit record highs of US$68,790 on 10 November, that really spurred new miners into the action and saw many existing miners expand their capacities.

Why then might they be selling their holdings today?

US$6.3 billion in Bitcoin transferred to exchanges in May

Citing data from Coin Metrics, Bloomberg reports that miners transferred 195,663 of their tokens to exchanges last month.

At May’s average Bitcoin price of US$32,000, that works out to just under US$6.3 billion.

No chump change, that.

While transferring to an exchange doesn’t necessarily mean the miners will sell their holdings, the big spike in transfers has certainly caught crypto investors’ attention.

So, what’s happening?

Commenting on the multi-billion dollars in transfers in May, director of content at Compass Mining Will Foxley said, “I think miners are just talking about the macro environment and think it is probably prudent to sell Bitcoin in these levels in order to keep the operations safe.”

Indeed, junior Bitcoin miner Cathedra Bitcoin sold most of its holdings to stay afloat.

“We have spent the last several weeks restructuring our balance sheet and operations to ensure Cathedra is well-positioned to endure a prolonged economic downturn,” Cathedra CEO AJ Scalia said.

Costs up, returns down

Miners betting that the token would regain its 54% losses from 10 November’s all-time highs are still waiting. And with global power prices surging – the vast computer arrays in mining operations use astonishing amounts of electricity – their costs are going up while their rewards have gone backwards.

And the publicly-listed miners are taking a second wallop from the struggling share markets, making capital raising more difficult.

If the Bitcoin price rebounds, we’re likely to see the miners return to holding their tokens tight. But for now, many have little choice but to sell at the current prices to keep their operations running.

The post Why are Bitcoin miners selling their holdings? appeared first on The Motley Fool Australia.

More reading

• What’s the outlook for crypto prices in June? Industry insiders weigh in
• 2 top cryptocurrencies to buy and hold for decades
• Why did crypto prices get massacred in May?
• Has the Bitcoin price bottomed?
• Why is the Bitcoin price bouncing back this week?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) is off to a shaky start to the trading week so far this Monday. At the time of writing, the ASX 200 has slipped 0.32% today and is now back near 7,200 points.

But rather than letting that cloud our Monday. Let’s instead take a look at the ASX 200 shares that are presently at the top of the share market’s volume charts, according to investing.com.

The 3 most traded ASX 200 shares by volume this Monday

AMP Ltd (ASX: AMP)

ASX 200 financial services company AMP is our first company up today. So far this Monday, a notable 13.75 million AMP shares have changed hands. There’s been no major news or announcements out of AMP so far this Monday.

Saying that, the AMP share price is comprehensively bucking the market’s malaise so far today, and is currently up a healthy 1.96% at $1.14 a share. It’s this rise upwards that has probably sparked this elected volume we see.

Pilbara Minerals Ltd (ASX: PLS)

Pilbara Minerals is next up this Monday. As it currently sits, this ASX 200 lithium stock has had a sizeable 16.88 million of its shares find a new home. There have been no developments out of Pilbara today either. However, we have also seen a decisive share price movement for Pilbara today.

Unfortunately for investors, it’s gone the opposite way to AMP. Pilbara shares are currently at $2.43 each, having lost 0.82% so far today. Saying that, soon after market open, this company went as low as $2.35 a share (down more than 3%). Thus, it is probably this loss that has resulted in Pilbara’s presence here.

Liontown Resources Limited (ASX: LTR)

Another ASX 200 lithium stock in Liontown rounds out our list today. This Monday has had a hefty 17.28 million Liontown shares bought and sold at the time of writing. This volume comes after Liontown dropped some big news this morning.

As we covered earlier today, Liontown has signed a definitive offtake agreement with US electric vehicle manufacturer Tesla Inc (NASDAQ: TSLA) for the supply of lithium spodumene concentrate. Despite this development, Liontown shares have lost 2.76% of their value so far today at $1.24 a share.

The post Here are the 3 most traded ASX 200 shares on Monday appeared first on The Motley Fool Australia.

More reading

• Down 5% in a month, is the AMP share price a buying opportunity?
• Do Novonix shares pay dividends?
• What to expect from the RBA interest rate decision this week
• ASX 200 midday update: Magellan smashed, Liontown signs Tesla deal
• Could the Core Lithium share price be set to take off again in June?

Motley Fool contributor Sebastian Bowen has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors get excited about stock splits. It’s certainly understandable; getting more shares of your favorite company can bring a smile to the faces of even the most stoic among us.

It’s also true that companies that announce their intentions to split their stock tend to see their share prices run up as the split date approaches. Even though stock splits do not fundamentally alter the value of a business — they simply create more slices of the same pie — many people are happy to buy more shares at lower prices.

Professional traders know this, so they also tend to buy stocks that are about to split ahead of their split dates. All this buying can drive share prices up, bringing in more momentum traders and adding fuel to the fire.

But that’s not what this article is about. Yes, Amazon (NASDAQ: AMZN) is scheduled to split its stock 20-for-1 this weekend. Yet there are far more important and exciting reasons to buy shares today.

Here’s why the cloud-computing juggernaut’s stock price is set to soar. 

1. AWS is a beast

When most people think of Amazon, they understandably think of its massive e-commerce business. The online retail leader commands the lion’s share of many global e-commerce markets. For example, roughly 57% of all online retail purchases in the U.S. are made on Amazon’s platform, according to digital payments research company PYMNTS. So the company’s e-commerce sites are how many people engage with its services every day.

Yet many businesses rely on Amazon for an entirely different reason. Amazon Web Services (AWS) is the dominant cloud computing platform. It’s the infrastructure millions of organizations use to power their cloud-based applications. AWS makes it easy to access high-performance computing and storage, as well as an ever-growing array of cloud services. Cutting-edge technologies, such as machine learning and artificial intelligence, are also readily available. 

With lower up-front costs, it’s often more cost-effective for start-ups to use AWS than building out their own data centers. AWS also gives small businesses access to many of the same tools as their larger rivals. And large companies can use AWS to quickly scale operations while gaining additional security above what their own on-premise networks could provide.

For these and other reasons, AWS has become a huge and fast-growing business for Amazon, as well as its most important profit driver. The segment’s revenue surged 37% year over year to $18.4 billion in the first quarter alone, while its operating income soared an even more impressive 57%, to $6.5 billion. 

With the shift to the cloud still in its early innings, AWS’ growth should continue to fuel Amazon’s expansion for many years to come.

2. Advertising is booming

Digital advertising is another often-overlooked profit driver for Amazon. With so many consumers beginning (and often ending) their online shopping searches on Amazon, the company’s ad platform has become an indispensable marketing tool for countless third-party merchants.

Amazon offers what few other companies can: the ability to advertise to consumers when they are most ready to buy. People go to the platform for the express purpose of searching for and purchasing the items they need and want. Conversion rates on its ad network thus tend to be much higher than on general search engines or social media sites. Merchants know this, and they’re willing to pay large sums to gain access to these customers.

Amazon’s advertising business, in turn, is growing rapidly. Ad revenue jumped 23% to a whopping $7.9 billion in the first quarter. With more ad spending moving to digital channels every day, Amazon’s burgeoning ad business is set to grow far larger in the years ahead.

3. The stock is cheap

The broad market sell-off has battered the prices of even the best businesses this year. That includes Amazon, which has seen its share price shed more than a quarter of its value since the beginning of the year. 

The stock now trades for roughly 20 times its projected operating cash flow of $121 per share in 2022. That’s at the bottom end of the range it’s traded within over the past five years. 

AMZN price to CFO per share (TTM). Data by YCharts. TTM = trailing 12 months; CFO = cash flow from operations.

Amazon’s valuation looks even more attractive when we use analysts’ estimates for 2023. Its shares can currently be had for less than 14 times its expected operating cash flow for next year of $176 per share. 

Said differently, Amazon’s stock is unlikely to be trading at its current price in the coming years. What’s far more likely is that investors will bid up the shares as AWS and advertising sales drive its profits sharply higher. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons Amazon stock could soar after its split appeared first on The Motley Fool Australia.

More reading

• Amazon shareholders approve 20-for-1 stock split. Here’s what investors should know
• Amazon stock rallied today — here’s why now might be the time to buy
• 3 reasons to buy Amazon and 1 reason to hesitate
• 2 reasons Amazon stock is slumping today
• Why Meta Platforms stock just rose while Amazon sank

Joe Tenebruso has the following options: long January 2024 $2,000 calls on Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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