, Inc.: Buy AMZN Stock and Don’t Look Back

AMZN -, Inc.: Buy AMZN Stock and Don’t Look Back

Source: Mike Seyfang via Flickr

Ordinarily the idea is to buy low and sell high, but even at record levels,, Inc. (NASDAQ:AMZN) stock still is worth picking up — if only because of torrid growth from the AMZN rocket known as Amazon Prime., Inc. (NASDAQ:AMZN) AMZN stock logo

The broader market has delivered disappointing returns for some time now. Indeed, over the past 52 weeks, Amazon stock is slightly negative.

But that’s hardly the case with AMZN stock — the world’s dominant online retailer has seen its value grow by two-thirds over the same span.

AMZN Stock: Large, Still in Charge

We’re talking about a company that had a market capitalization of more than $200 billion a year ago. Today, it’s closer to $340 billion and has ample room to grow.

As a company gets bigger, its growth rate is supposed to slow down. AMZN might not be exploding like it used to, but it still has a long-term growth forecast of 55% a year. At that rate, it won’t be too long before Amazon claims the title of world’s largest publicly traded company.

And there’s every reason to expect it to get there.

The fundamentals continually wow investors and the news flow delivers a steady stream of upside catalysts. For example, on Thursday alone, the market was treated to some bullish news on Amazon Prime.

AMZN Rides Amazon Prime and More

Amazon Prime is one of the company’s most important strategies for growth because customers who pay $99 a year for membership spend more money on AMZN than non-members.

Far more.

Consumer Intelligence Retail Partners, a market research outfit, says Amazon Prime subscribers spend an average of $1,500 a year on the site. Non-members spend just $625. Most importantly, Amazon Prime has ample room to grow — and it is doing so sharply.

Revenue from Amazon Prime more than doubled during the holiday selling season. U.S. membership rolls are estimated at more than 50 million, and yet fewer than half of all AMZN customers are enrolled.

They’re also extremely loyal. According to CIRP, Amazon Prime member retention rates actually improve over time. And this comes despite AMZN raising the membership fee by $20 a year a couple of years ago. From CIRP:

“CIRP estimates that 73% of 30-day trial subscribers pay for the first full year of Amazon Prime membership. Slightly more than 91% of first-year paid subscribers renew for a second year, and 96% of second-year paid subscribers renew for a third year.”

Critically, retention rates rebounded after taking a year-over-year hit in 2015 due to the price hike. The bottom line is that new members stick around.

Of course, Prime doesn’t have to do the heavy lifting of revenue growth all by itself. After all, AMZN is also seeing success with cloud computing. Revenue from Amazon Web Services grew 64% to $2.57 billion in the most recent quarter — and best of all, the high margins there have helped Amazon tackle its previously stumping profitability issues.

Between Amazon Prime and AWS, Amazon stock will continue to benefit from the company’s enormous presence in online retailing and cloud-based services. This is why shares trade at 73 times forward earnings and investors tolerate the occasional unprofitable quarter.

AMZN stock might just represent the best mega-cap growth story of all time.

This is not to say that Amazon stock won’t stumble from time to time. All equities do. But if you can just stick it out through the downturns — dollar-cost averaging all the way — there will be many more record highs to come.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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