Amazon.com, Inc. (AMZN) stock went absolutely bonkers in 2015, soaring 118%. It was the second-best performer in the entire S&P 500 — only Netflix, Inc. (NFLX) and its absurd 130%-plus gains were better.
The AMZN stock price will not do that again in 2016. It may never do that ever again, to be honest. But beat the market? Yeah, Amazon is more than capable of doing that.
That’s because the Seattle, Washington-based retailer is light years ahead of its biggest domestic competitors, Wal-Mart Stores, Inc. (WMT) and Target Corporation (TGT) in e-commerce, which is arguably more important than brick-and-mortar business at this point in time.
Let’s take a look at what Wall Street expects from AMZN going into its Q4 earnings report, and why, although Amazon stock is somewhat pricey and therefore somewhat risky, it’s still a savvy long-term investment.
AMZN Q4: By the Numbers
The holiday quarter is every retailer’s dream, and Amazon will, without a doubt, report record quarterly revenue in the period ending in December 2015.
Official Q4 results will come out on Thursday after the ring of the closing bell, and Wall Street’s looking for some big things from AMZN. Analysts expect revenue to jump 22.7%, from $29.33 billion to $35.98 billion. Earnings per share are supposed to do something even more remarkable, jumping 262% from 45 cents in Q4 2014 to $1.63 in Q4 2015.
These numbers are unthinkable for most companies, so the fact that this sort of growth is expected from Amazon, which has a revenue run rate of over $100 billion a year, is remarkable.
But publicly traded companies this good don’t often sneak by under the nose of investors, and AMZN certainly hasn’t. Its wildly impressive growth is the reason shares more than doubled last year, and is the driving reason shares trade for 108 times forward earnings.
That rich multiple makes the stock riskier, giving it more room to fall. And there’s a very real possibility AMZN stock will fall, even after a blowout quarter. 2016 hasn’t been kind to the stock market, and investors are fleeing high-risk assets. NFLX last week posted incredible subscriber growth numbers and easily beat on earnings, but was promptly greeted with a steep selloff — it cratered 9% in a number of hours.
So why should any investor consider buying shares of Amazon at these prices?
Why Amazon’s a Great Long-Term Holding
While the risk-averse may want to avoid buying AMZN stock right here and now, those with a bit higher risk tolerance and a longer time horizon should definitely consider the stock. There are a number of impressive differentiators for the stock:
- Amazon has traded at a high P/E for decades, so it defies most traditional fundamentals.
- AMZN is focused on a smooth, seamless customer experience, and its two-day delivery for Prime members is an unrivaled feature.
- The fact that it’s building its own logistics network, steadily phasing out United Parcel Service, Inc. (UPS), will help to further trim costs, giving AMZN another leg up on the competition.
- Same-day delivery has already rolled out in select cities, and 30-minute delivery by drone could be possible as soon as the FAA approves drones for such commercial usage.
- Amazon Web Services, or AWS, is Amazon’s X factor. The go-to cloud computing resource for enterprises, it’s growing at a staggering 80% a year, and its margins are insane. In the third quarter, it logged revenue of $2.1 billion, accounting for just 8.2% of Amazon’s total revenue — but 52.5% of its operating profits.
Amazon stock, for all of those reasons, is still a good long-term buy going into earnings.
Just be sure you can handle some short-term volatility.
As of this writing, John Divine was long shares of AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
