Jim Cramer says Amazon stock is a buy ahead of its Prime Day event — here's why

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Amazon is a buy ahead of its annual Prime Day starting Tuesday — even as the stock has rallied hard this year. That's because the high-quality stock is still cheap, said Jim Cramer on CNBC Monday. Consider: Shares of the e-commerce giant are up nearly 29% in 2024 compared to the S & P 500 index's roughly 18% gain. And yet, the stock trades at a price-to-earnings ratio of 37, well below its five year average of 61, suggesting it is undervalued. "How is Amazon's price-to-earnings multiple going down at a time when CEO Andy Jassy is doing such a remarkable job?" Cramer said. The company reported a strong first quarter in April in which it showed off the benefits of its cost control efforts. Operating expenses were lower than expected across the board, including fulfillment costs, while sales in e-commerce and the cloud business were solid. It reports second-quarter results July 25. "I still think it's a buying opportunity," Cramer Monday morning said on "Squawk on the Street." One potential catalyst for the stock is Amazon's annual Prime Day event and its ripple effects. As usual, the event, which runs Tuesday and Wednesday this week, will offer millions of special deals for Prime members across a variety of categories including electronics, household items, apparel, and wellness products. A new area this year is Amazon Travel, which offers discounts on cruises and car rentals. AMZN YTD mountain Amazon share performance year-to-date. Shoppers are expected to spend about $14 billion during the two-day event this year, a new record and a 10.5% increase from last year, according to projections from Adobe Analytics, which tracks e-commerce transaction data. And Wall Street sees benefits that go beyond sales during the event. JPMorgan, for one, said Prime Day will help Amazon "rationalize inventory levels" ahead of higher consumer demand in the second half of the year. This, in effect, will help Amazon further improve delivery speeds, which are already at record speeds, the analysts said in a note Friday. JPMorgan has an overweight rating on Amazon shares and a price target of $240. In a separate note Monday, Bank of America largely agreed that the event will help test newer operations. "We see this year's Prime Day as an opportunity to leverage several logistics initiatives such as new inbound centers, more efficient inventory placement and new third-party seller fees," Bank of America analysts wrote. They also said Prime Day should be a driver for Amazon's advertising business, particularly on Amazon Prime Video ad spend. The bank said this is important since ad revenues are a key driver to retail profitability. Bank of America reiterated its buy rating with a price target of $220. (Jim Cramer's Charitable Trust is long AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. The Amazon Prime logo on a package in Manhattan. Michael Kappeler | Picture Alliance | Getty Images