Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon's unparalleled dominance across multiple industry sectors has positioned it in a class of its own. Over the past 20 years, the company's stock has experienced a staggering 9,280% increase, propelling its market capitalization to an impressive $1.75 trillion. To put this into perspective, only 11 countries worldwide boast a higher gross domestic product (GDP).
This monumental growth raises a pertinent question among investors: Is Amazon still a viable investment for future returns, or has the opportunity passed?
In the last year alone, Amazon achieved an astounding $604 billion in net sales. Such a colossal revenue base naturally leads to skepticism about the company's ability to sustain its growth trajectory. Scaling revenues at this magnitude is undeniably challenging.
However, consensus estimates from Wall Street analysts project that Amazon will expand its revenue at a compound annual growth rate (CAGR) of 10.8% between 2023 and 2026. While it's prudent to approach forecasts with caution, this optimistic outlook cannot be ignored.
Several long-term trends are fueling Amazon's continued ascent. Chief among them is the increasing shift towards online shopping - a sector where Amazon holds a commanding presence. Data from Statista reveals that Amazon.com captures 38% of all e-commerce spending in the United States. Moreover, considering that 84% of US retail purchases still occur in physical stores, Amazon has substantial room to grow and capitalize on the gradual migration to digital commerce.
Amazon Web Services (AWS), the company’s premier cloud computing platform, commands an impressive 31% of the global market share. As businesses increasingly shift IT spending from on-premises solutions to cloud-based services, AWS stands to benefit significantly. This industry is expected to experience substantial growth, and with Amazon’s heavy investments in artificial intelligence (AI) to enhance AWS, this segment is well-positioned for exceptional success.
The evolving media landscape is another area where Amazon is making strides. The rise of streaming entertainment has created opportunities, and Amazon Prime Video has emerged as a leading player. According to Nielsen, Prime Video ranks just behind Alphabet's YouTube and Netflix in terms of daily TV viewing time in the US.
Additionally, Amazon's digital advertising segment is rapidly gaining momentum, although it often flies under the radar. In the most recent quarter, revenue from this segment surged by 20%, reaching $12.8 billion. With millions of motivated shoppers visiting Amazon.com every month, the platform is a valuable space for advertisers.
These strong secular trends are expected to continue driving growth over the next decade and beyond, and Amazon is in an excellent position to capitalize on them. Despite a strong start in 2024, where Amazon's stock climbed 32% through July 2, the stock has since dropped 17% from its all-time high, offering a potentially attractive entry point for investors.
Currently, Amazon’s shares trade at a price-to-sales ratio of 2.9, below the five- and 10-year average valuation multiples. Alongside robust revenue growth prospects, Amazon is also focusing on boosting profitability. The company’s efforts to reduce costs are paying off, with operating income rising to $14.7 billion in the second quarter - a 91% increase year over year.
Analyst projections suggest that Amazon’s earnings per share could grow at a compound annual rate of 36.8% between 2023 and 2026. This indicates that there’s still significant potential for investors to achieve strong returns by owning Amazon stock.
As long as the price is above 160.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 169.48
- Take Profit 1: 175.00
- Take Profit 2: 185.00
Alternative scenario:
If the level of 160.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 160.00
- Take Profit 1: 155.00
- Take Profit 2: 150.00
