Coronavirus Could Crush Overvalued Amazon Stock

Amazon’s share price is overvalued based on traditional value metrics. The coronavirus outbreak could impact the e-commerce giant’s business and send its stock tumbling.

Amazon has relied on ‘Just In Time’ inventory management to keep its online business profitable. The coronavirus outbreak means Amazon will have to spend a lot of money on inventory storage. This will eat into its razor-thin profits.

Online retailer Amazon sells over a hundred million products. A significant portion of these products are manufactured in China. This heavy reliance means the e-commerce giant has to stay in touch with Chinese manufacturers at all times.

Regular contact with Chinese manufacturers foretold that Amazon would feel the squeeze of supply chain disruption caused by coronavirus before others. Maybe this is the reason Jeff Bezos sold over $4 billion worth of shares in the first 11 days of February.

At the start of February, markets shrugged off all coronavirus fears and moved towards new all-time highs. Amazon even claimed there were no interruptions to its operations amid the epidemic. Yet Bezos was busy dumping Amazon stock.

The impact on Amazon could be notable worse because of its dependence on Chinese sellers. The share of Chinese sellers on Amazon has been growing over the years.

As per recent estimates, over 40% of Amazon sellers are from China. Reports also suggest hundreds of millions of people are quarantined in China to contain the coronavirus outbreak.

The quarantine is a double whammy for Amazon. Not only will Chinese sellers stop selling, but people will have less disposable income. The outbreak also means a lot of international buyers will refrain from buying Chinese products.

Coronavirus Could Crush Overvalued Amazon Stock, CCN, Feb 26