& # 39; The world's largest e-commerce retailer, Amazon.com (NASDAQ :), continues its upward journey this year and defies the expectation that high-flying stocks have become too expensive and need a major correction. We see the strong competitive position of the company and multiple income generators as powerful engines for further and sustainable growth, despite the high share price.
Trading at $ 1,814.19 at the end of yesterday, the shares of Amazon have increased by 23% this year, which has increased the increase of more than 25% in the past year. And the company's momentum for growth suggests that in the short term there is nothing that can hinder the rise in shares.
The furious and sustained rally that Amazon has driven for 430% over the past five years, means that this tech giant now seems expensive. A 90-times more expensive Amazon price is not cheap according to traditional standards and can be followed by a sharp correction at the first sign of danger.
To support this argument, we mention Amazon's slowed revenue growth last year, the rising cost of doing business, and the difficulties in bringing its success story to overseas markets. Amazon sales slowed for the third consecutive quarter with an increase of 19.7%, the smallest quarterly jump since 2015.
Amazon predicts sales of $ 56- $ 60 billion for the current quarter. At the bottom of the Amazon range, sales would only be around 10% higher than a year earlier. That would amount to his worst showing since 2001.
But despite these problem areas, we continue to love Amazon stocks for investors who invest and hold over the long term. Investing in technology stocks is not without risk, especially in this late phase of the bull cycle that shows some signs of a peak. But for long-term investors, Amazon is still one of the best bets on fast-growing technology stocks. These are our two main reasons to support the high premiums of the shares:
1. No Let-Up in consumer shift to e-commerce
What makes us comfortable when recommending Amazon shares is the broad economic battle of the company, a term coined by & # 39; the world's most successful value investor, Warren Buffett, to define companies that have a sustainable competitive advantage. Amazon certainly fits well in this category.
It has the power to defend the dominant position in online retail that it has built up over the past ten years. Consumers are spending $ 484 billion worldwide on Amazon this year, 26% more than in 2018, and the Seattle-based company will, according to EMarketer Inc. record more than half of all online editions in the United States
2. New growth factors on the way
In addition to the company's broad competitive edge in e-commerce, Chief Executive Officer Jeff Bezos is opening a number of new areas of growth alongside the low-margin activities of selling goods online.
Amazon has the largest cloud platform in the world and serves large business customers. Amazon Web Services, known as AWS, is growing by more than 40%.
The digital advertising activities of Amazon, another high-margin company, are expanding by a triple digit. Backed by these highly profitable units, Amazon has been able to disrupt many industries and continue to do so for a long time.
The company also has a hardware unit that produces a growing range of smart speakers and video streaming gadgets. The Amazon Studios division makes original television programs & # 39; s and films and has begun to challenge Netflix (NASDAQ 🙂 and HBO (NYSE :). The ambition in the physical retail space is no longer a secret after the acquisition of Whole Foods Market and the growing fleet of cashless convenience stores
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Bottom Line
Due to Amazon's leading position in many of the areas in which it operates, its share is one of the safest bets in the technology sector. Amazon e-commerce continues to show a fast-growing growth trajectory and its earnings momentum from AWS and digital advertisements remain strong. Analysts expect on average more than 40% earnings growth in the next five years. If that happens, it is more than sufficient to justify the rich valuation of Amazon shares
