Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investing doesn't have to be overly complex. Sometimes, it's about ensuring a few key factors are in place. For years, Amazon has consistently checked those essential boxes, which is a significant reason it remains one of the top-performing stocks in history.
But what are these key factors, and does Amazon still possess the qualities needed to generate returns for investors? A closer examination reveals whether Amazon is a stock to buy, sell, or hold today.
Starting as an online bookstore in the late 1990s, Amazon has evolved into a one-stop destination for consumers across the US. Today, nearly anything can be purchased on Amazon, with around 200 million households subscribing to Amazon Prime to access the company's vast range of products, services, and perks. However, Amazon didn't stop there; in 2006, it launched Amazon Web Services (AWS), which has since become the leading cloud platform globally.
With over $600 billion in annual revenue across its various ventures, Amazon dominates US e-commerce, controlling an estimated 38% of the market. In the cloud sector, AWS commands 31% of the global market. Being the largest player brings significant competitive advantages. For instance, Amazon's vast supply chain and logistics network enables quicker delivery than most e-commerce competitors. Additionally, its scale allows it to negotiate better prices with sellers. AWS operates similarly, offering greater value to companies compared to other providers, except perhaps Microsoft’s Azure, which holds a 25% market share.
Amazon's biggest challenge may come not from competitors but from US regulators who could seek to curb its dominance, rather than companies threatening its top spot in e-commerce and cloud services.
Every company eventually matures and experiences slower growth, and Amazon is no exception. Yet, its ability to maintain double-digit revenue growth at its scale is impressive. Amazon's culture of innovation and expansion suggests it could continue growing. For instance, e-commerce still accounts for only 16% of total retail spending in the US, and Amazon is well-positioned to capitalize on any further growth in this area. Meanwhile, the global transition from on-premise computing to cloud services is still ongoing, with experts predicting the cloud market could expand by 21% annually through 2030, offering Amazon significant future opportunities.
Beyond its core businesses, Amazon has also invested in media to boost its advertising arm, including securing live sports broadcasting rights in the NFL and NBA. The company is also exploring the healthcare sector. With substantial financial resources and a willingness to invest in new areas, Amazon is well-equipped to continue diversifying its business.
While Amazon's potential for growth is clear, evaluating whether the stock is worth its current price is essential. High-quality stocks like Amazon don't need to be dirt cheap to deliver impressive long-term returns, but Amazon is currently offering an even better opportunity: it's relatively undervalued.
Amazon's shares are trading at a forward P/E ratio of 38, while analysts predict the company will grow earnings by an average of 23% annually in the long run. This gives Amazon a PEG ratio of 1.6, suggesting that the stock is reasonably priced considering its expected earnings growth. Typically, PEG ratios around 1.5 or lower are favorable, so Amazon appears to be in a good range.
What makes Amazon's stock such a bargain? The company is known for reinvesting its profits to fuel growth, which means earnings might not fully capture its value. Instead, evaluating Amazon based on the daily cash flow it generates can provide a clearer picture. By that measure, Amazon's stock is trading near its lowest valuation in a decade.
Depending on the valuation method used, Amazon's stock is either reasonably priced or an outright deal.
Great investments come from checking all the right boxes, and Amazon does just that. The company remains dominant in e-commerce and leads in cloud computing, both of which still have plenty of room for growth. At the same time, Amazon is exploring new opportunities. With the stock trading at a level that should allow its strong business fundamentals to translate into equally strong returns for investors, it remains a compelling buy for any long-term investor.
As long as the price is above 169.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 171.20
- Take Profit 1: 175.00
- Take Profit 2: 180.00
Alternative scenario:
If the level of 169.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 169.00
- Take Profit 1: 166.00
- Take Profit 2: 163.00
