Is Investing in Amazon Stock Still a Good Idea?
Amazon, which started as an online bookstore 30 years ago, has grown into a global retail powerhouse, offering a wide range of products and services like Amazon Prime, electronic devices, and Amazon Web Services. Over the past decade, the company’s stock has seen remarkable growth, appreciating by almost 1,000%, significantly outperforming the S&P 500’s total return of 227%.
For instance, if you had invested a modest $1,000 in Amazon stock just 10 years ago, that investment would be worth around $10,500 today. In contrast, the same amount invested in the S&P 500 would have yielded approximately $3,300. This impressive growth has caught investors’ attention, but is Amazon stock still a good buy?
With a price-to-earnings (P/E) ratio of 39, much higher than the S&P 500’s 27, the market has high expectations for Amazon’s future growth. Amazon’s cloud computing business, Amazon Web Services (AWS), remains a major profit driver for the company. In the recent quarter, AWS’s sales grew by 18.6% to $26.3 billion, with an operating income increase from $5.4 billion to $9.3 billion. AWS boasts the highest operating margin of 36.5% among Amazon’s segments, indicating strong profitability. The increasing demand for data services and the potential of artificial intelligence could further enhance AWS’s growth prospects.
Considering Amazon’s relatively high valuation, investors may opt for dollar-cost averaging when purchasing shares. This strategy involves investing small amounts at regular intervals, reducing the risk associated with market timing. While Amazon’s stock may not replicate the exceptional returns of the past decade, its continued innovation and diverse revenue streams make it an intriguing investment option.
In conclusion, investing in Amazon stock can still be attractive, given the company’s solid performance and growth prospects. As always, it’s essential to conduct thorough research and consider your own financial goals before making any investment decisions.
John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), is a member of The Motley Fool’s board of directors. Lawrence Rothman, CFA, has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon. The Motley Fool adheres to a strict disclosure policy.
