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AMZN: Why Amazon Stock Is Still a Buy

It’s already booked giant gains, but it’s not done yet

I was on MoneyLife earlier this week talking about stocks to buy and sell. As I told Chuck Jaffe on the show, just because a stock is cheap doesn’t mean it’s a bargain. And on the flipside, just because a stock has gone up 200% or so doesn’t mean there isn’t more room for the stock to continue running — a lesson it took me years to understand.

Amazon AMZN

To that end, I laid out a simplified version of my methodology for finding the best stocks to buy, regardless of recent performance. In a nutshell, my team and I are constantly scanning for things like strong top-line growth, a strong supporting macro picture, and a strong balance sheet.

That brings us to a stock I continue to be bullish on, despite the fact that it’s already booked killer gains. It’s a household name, a retail powerhouse, a technological leader, and a great investment.

I’m talking about Amazon (AMZN).

Amazon stock has already doubled so far in 2015, gained almost 115% over the last 12 months, and has soared 265% over the last five years. But it’s not done, yet.

The first thing to love about AMZN is, as I mentioned already, its strong sales growth. The company is slated to grow its top line by 20% this year and next. The company’s revenue growth has been impressive for some time, too — it just hasn’t translated to profits since Jeff Bezos & Co. have been heavily investing in infrastructure, warehouses, and new technology.

Finally, though, those investments are paying off. AMZN is set to turn a profit in 2015 … and set to almost triple that profit the year after.

Now let’s talk a bit about the macro outlook, which is also strong. For starters, e-commerce is booming, with year-over-year growth trending at 15% according to the Census Bureau. Plus, when it comes to e-commerce, Amazon is a clear leader with lots of pricing power. This was clear in the most recent quarter, when revenue jumped 23% thanks largely to sales of electronics and general merchandise, which should pay off during the rapidly approaching holiday season.

Beyond that, the company continues to invest in cutting-edge technology such as drones — another mega-trend — and it’s already a leader in the booming cloud computing space. Amazon Web Services was another highlight in the company’s recent earnings report, which sent shares of AMZN stock higher by double digits.

Last but not least, Amazon has a strong balance sheet. The company’s total long-term debt is just over $8.2 billion. While that isn’t a small chunk, it’s more than covered by the company’s cash stash, which currently sits north of $10.7 billion.

Add it all up and Amazon is far more than an online bookstore, and its best gains definitely aren’t in the rearview. Instead, strong fundamentals and continued innovation should continue pushing AMZN stock higher in coming months and years.

Don’t be scared away by the stock’s existing success.

Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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