A once-in-a-decade opportunity? Is Amazon (AMZN.US), which is nearly halved, worth buying?

Zhitong Finance APP has learned that the Nasdaq Composite Index has fallen into a bear market this year as investors have become increasingly pessimistic about high inflation and rising interest rates, and both factors are likely to push the U.S. economy into recession. These concerns have particularly hit Amazon (AMZN.US). Since the beginning of the year, the company's stock price has plummeted by nearly 50%, the largest decline in the past 10 years.

Yet despite Amazon's struggles this year, patient investors still have good reasons to be optimistic about the tech giant's future.

Reasons to be short on Amazon

Currently, the case against Amazon focuses on the cost structure of its retail business. The company operates the most visited online marketplace in the world, and the Amazon brand is undoubtedly synonymous with online shopping, but retail itself is a very low-margin industry.

This is especially true of Amazon. The company operates a vast logistics network and often spends significant amounts on transportation and distribution.

High inflation makes this situation worse. Discretionary consumer spending has slowed over the past year and business operating expenses have soared, a situation that has led to disappointing financial results. According to Amazon's third-quarter financial report, the company's revenue only increased by 15%, operating profit fell by 48%, and the company's free cash flow was negative US$19.7 billion in the past 12 months.

Although, Amazon still has plenty of cash and short-term investments on its balance sheet, so the company is not in immediate danger. But if the company is forced to take on additional debt in a rising interest rate environment, it will put more downward pressure on profitability and free cash flow. So, bears see this as a reason to avoid the stock.

However, there are two problems with this view. First, the economic negative is temporary, which means that when inflation eventually returns to normal, cost pressures on Amazon's retail business will be relieved to some extent. Second, Amazon's profits will gradually rise in the coming years because its fastest-growing business areas have much higher profit margins than retail.

Reasons to be bullish on Amazon

The bullish case for Amazon centers on its strong position in three other growing markets: e-commerce, cloud computing and digital advertising. While retail profit margins may be thin, Amazon will account for 40% of U.S. online sales this year, more than five times the market share of rival Walmart (WMT). That means Amazon remains better positioned than its rivals to capitalize on the long-term shift toward online shopping. According to Ameco Research, global e-commerce sales are expected to grow at an annual rate of 13%, reaching 15 trillion US dollars by 2030.

What's more, Amazon is becoming a digital advertising giant, thanks in large part to the popularity of its online marketplace. According to eMarketer data, when U.S. consumers search for a product, Amazon is often the first choice for consumers, even more common than Google (GOOG.US) searches. This makes Amazon a valuable advertising partner for major brands. In fact, the company is now the fourth-largest advertiser in the world, and Amazon almost led the world in ad revenue growth last year.

This will have a big impact on Amazon's growth. Because digital advertising is a huge industry, its size is quickly approaching $1 trillion, and the industry's profits are much higher than those of the retail industry. While Amazon hasn't provided specific operating metrics, Google's ad business typically has operating margins in excess of $301, so investors can reasonably assume Amazon is at that level as well.

Additionally, Amazon Web Services is a leader in cloud computing, another fast-growing and highly profitable industry. In fact, AWS currently has twice the market share of the next closest cloud computing provider, Microsoft (MSFT) Azure, and its operating margins are typically around 30%. This means that AWS will become a powerful growth engine in the next few years. According to data from market research firm Fortune Business Insights, the cloud computing market is expected to grow at an annual rate of 20%, reaching $1.7 trillion by 2029.

Amazon valuation is cheap

Given Amazon's strong presence in three large and growing markets, investors have every reason to believe Amazon's sales will grow at an average double-digit rate over the next few years. What's more, Amazon should become more profitable over time because AWS and ad services are growing faster than the retail business.

With that in mind, the company currently trades at 1.8 times sales, below its three-year average of 3.7 times. That's certainly a bargain for a company that's poised for double-digit sales growth over the long term.

It's also worth noting that the stock currently trades at a price-to-earnings ratio of 81.8, roughly in line with its three-year average. And because Amazon's high-margin businesses account for a larger proportion of total revenue, the P/E ratio should fall quickly.

Therefore, with its cheap valuation and optimistic growth prospects, investors should be a good choice to buy Amazon.