Amazon is an american multinational company that has its base in Seattle. The company is active in E-commerce, smarthomes, artificial intelligence and lately even in space travel. The stock has been going sideways for the last year or so. And the question is if now is the time to buy the stock?
Amazon’s long term revenue growth rate is impressive, at around 25-30 percent a year, for the last thirteen years. And that growth rate is increasing along with expanding margins. If the growth continues, Amazon’s stock could soar in 2020.
Amazon Inc was founded in Jeff Beso’z garage in 1994. The company started its journey as an online book store. But later it expanded into other industries. And today Amazon is involved in a multitude of areas. For example cloud computing, video and online sevices. Lately the company has even started to invest in space travel and artificial intelligence.
As a FAANG stock, Amazon has been a leader in this bull market, together with Apple, Google and Facebook. And as the rest of the FAANGs it has been going sideways for the last year or so. But now, the FAANGs might be ready for a resurgence, judging from stock prices.
Amazon’s price to earnings ratio is around 80, and the Enterprise value to EBIT, is around 60. Now, people might think this is an extreme overvaluation. Because it would be for any other company. But Amazon is not any other company. It is Amazon. And the multiple is actually quite low on an historical basis. Because Amazon’s PE has often hovered around 150 per share historically. Which is more than double of where it is at today.
The Enterprise value to EBIT, for Amazon, has been around 100 but it is now down to cirka 60. In addition the cash flows are shaping up. And Amazon is now making a profit. Which is significant. Because for a long time Amazon was not making a profit. The reason for that was its aggressive growth strategy, based on acqusitions and a leveraged capital structure. But now it has both positive earnings, and positive cash flows, coming in from operations.
Debt to equity is a lot better than in past years. Now standing at around 1,05. But most exciting are the increasing margins. During the last five years the operating margin has almost doubled every year. A very impressive expansion indeed.
Aggressive growth through aquistions
The story of Amazon is a story of growth. And a lot of that growth journey has been created through acquistions. Which is one of the reasons it did not make any profits for a long time. The aquistions allowed the company to enter into new markets and to eliminate competition. One example was the acquisition of Whole Foods in 2017, when Amazon moved into food delivery.
Jeff Besoz has been remarkably good at understanding new trends in the market. And to expand his company with the help of these trends. Which among other things has made the famous investor Warren Buffett impressed. Buffett even called Bezos ”the most remarkable business person of our age”.
Jeff Besoz still remains the CEO of Amazon and owns a twelve percent stake in the company. Bezo’s ownership makes him very much invested in seeing Amazon succeed. And this is of course good for shareholders.
Amazon made an attempt to break out in the summer of 2019, but failed. But it is now coming back towards the same resistance area. And maybe it could succeed in following the rest of the FAANGs out of its base this time.
The growth is accelerating and other FAANG names have been making new highs. Perhaps Amazon will follow suit. When I write this, in january 2020, the stock is trading slightly above 1850 dollars. Based on price action and growing profits the stock price could easily soar above 2500 dollars within the next year or two.
Disclaimer: I do not hold any stock in Amazon at the moment. All information found on this site, ideas, opinions, predictions, commentaries are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. I will not and cannot be held accountable for any actions you take as a result of what you read in here. Use the information at your own risk. I am not your investment advisor. Consult a licensed financial advisor before making any investment decisions.