Few stocks in 2015 have been hotter than Amazon (AMZN) stock.
Keep in mind these monster gains have all come in the midst of the most volatile year on Wall Street since 2011, with the S&P 500 up a mere 1.5%.
How has the e-commerce giant done it? For starters, the company has (finally) started to turn a profit somewhat regularly. In three of the past four quarters, Amazon’s earnings per share have been in the black, the first such occurrence since late 2012. Meanwhile, sales were up 23.2% last quarter, the biggest year-over-year revenue jump in two years.
The company’s burgeoning cloud computing business, Amazon Web Services, has been a big growth driver; the $2.1 billion it brought in during the third quarter was 62% higher than the $1.3 billion in cloud-computing sales a year ago. Improved traction overseas was another factor, particularly in India, where AMZN subscribers increased 230% year-over year.
5 Reasons to Like Amazon Stock
True, a return of 117% in less than 11 months is almost impossible to sustain, especially for a company as large as AMZN. But while Amazon stock isn’t likely to double again over the next year, I think its furious rally is far from over.
Why? These reasons stick out in particular:
- ‘Tis the season. The holidays are always a boom time for retailers, and with the rise of Cyber Monday and online shopping, no company dominates November and December quite like AMZN. Shoppers have ditched the inconvenience of driving to big-box stores like Walmart (WMT) and waiting in long lines for the convenience of doing their holiday shopping from the comfort of their homes. AMZN attracts a large chunk of that at-home traffic, which should make for a big quarter. In fact, the company expects to set records, with up to $36.75 billion in projected fourth-quarter sales.
- Profits could go through the roof in 2016. The most AMZN has ever earned per share was the $2.53 it brought in in 2010. Next year, analysts are forecasting EPS of $5.65 — nearly quadruple the per-share amount the company has earned in the almost five full years since!
- The P/E has never mattered. Value investors, hide your eyes: Amazon stock currently trades at an astronomical 961 times trailing earnings. That’s nothing. Three years ago, the stock traded at more than 3,600 times earnings, and has rarely traded below 1,000 times earnings over the last five years. During that time, the stock is up 282%. P/E ratios may matter to most stocks. But not to AMZN.
- More diversity. Amazon started out as a place to buy books online. Today it’s much more than that: the largest online retailer in America, a budding source of original streaming video content, an emerging cloud-computing giant, and a potential pioneer in the area of drone delivery. In an era when Apple has seemingly run out of new ideas beyond the latest iPhone or iPad upgrade, Amazon — and its founder Jeff Bezos — are perhaps the premier innovators in an ever-expanding tech world. Having such a diversified business model means AMZN isn’t overly dependent on any one segment of its business.
- The chart doesn’t lie. At some point, Amazon stock will run into a wall. But until that happens, there’s no obvious impediment other than the law of averages. Aside from a few days during the market collapses in late August and late September, AMZN has traded above its 50-day moving average since January. And with the holiday season and Cyber Monday upon us, buying volume in the stock has picked up. Yes, “Sell high” is one of the first tenets of investing; but so is, letting your winners ride.
More growth ahead for AMZN stock
If you don’t own Amazon stock yet, I don’t think it’s too late. You may have missed the biggest run-up, but its growth spurt is far from over.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.