There really never has been a company quite like Amazon.com, Inc. (NASDAQ:AMZN). Whatever one thinks about Amazon stock (I, for one, believe AMZN stock remains undervalued ) as a company Amazon clearly is one of the most transformative companies in American history.
The breadth and depth of Amazon’s business is astounding. So is the number, and quality, of companies that Amazon has bested in major end markets.
There’s a reason that the mere rumor of Amazon’s entry into a new space leads stocks in that sector to swoon. No one wants to compete with Amazon because so few have succeeded yet.
So far, that strength has been good news for the Amazon share price, even after an 11% pullback in Amazon stock off all-time highs reached in late July. Obviously, there are concerns about the stock’s valuation on a P/E basis. But I’ve long argued those concerns are short-sighted.
There is another bearish argument that Amazon’s success is coming solely from its low margins (and thus low prices) that, in theory, can’t last forever. Once the market starts demanding profits from Amazon, its “secret sauce” will be gone. Either Amazon raises prices, hurting sales growth. Or it maintains its razor-thin margins. Either way, bears argue, Amazon stock declines.
That argument is too simplistic, however. And it ignores just how many more potential wins Amazon may have in the coming years and decades. News over the past month shows just how much reach Amazon eventually will have. And that reach will continue to drive Amazon stock higher.
AMZN Stock Is a Blue Chip
There’s so much news about Amazon and AMZN stock that it’s easy to miss the forest for the trees. But it’s worth considering just how many markets Amazon competes in, how many it succeeds in and how many previously impenetrable competitors it’s taken down. In ‘cloud’, one of the biggest tech trends since the internet saw widespread adoption, Amazon is ahead of tech titans like Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NYSE:ORCL).
In retail, Amazon has caused significant disruption at, and taken significant share from, entrenched market leaders like Macy’s Inc (NYSE:M) and J C Penney Company Inc (NYSE:JCP). Its Echo is outselling Google Home from Alphabet Inc (NASDAQ:GOOGL). Amazon Business has completely upended the pricing model at industrial distributor W W Grainger Inc (NYSE:GWW), whose stock recently hit its lowest level in almost six years.
Simply as a company (again Amazon share price aside) the performance is staggering. To be fair, there have been many misses too, some of which I detailed last year. But the successes clearly have outweighed the failures so far. And with more opportunities on Amazon’s doorstep, that trend should continue.
Amazon’s New Opportunities
Amazon keeps creating new market opportunities. Individually, none are necessarily material for Amazon stock. But as a whole, they show why AMZN stock remains a buy.
The most well-covered of Amazon’s new markets is grocery, after its acquisition of Whole Foods Market. News of the deal sent grocery stocks tumbling; they fell again when Amazon started cutting prices the day the purchase closed.
Amazon stock currently has a market capitalization over $460 billion. The $13 billion acquisition of Whole Foods isn’t adding a huge amount to its fair value. But the process here could be replicated elsewhere, if Amazon chooses to buy entry to new markets instead of trying to build from the ground up.
And that process is going well. Whole Foods traffic data appears mixed, but Amazon itself has been able to sell Whole Foods brand products on its site. The brick-and-mortar portfolio offers another way to get customers into the valuable Prime program – and other channel through which to sell Alexa. More broadly, it continues the effective strategy of further embedding Amazon into the life of the majority of Americans.
Amazon’s importance is only going to grow. New versions of the Echo seem likely to expand its lead in smart speakers. The Alexa artificial intelligence platform looks well head of Siri, from Apple Inc. (NASDAQ:AAPL), and Google Assistant. The company reportedly is looking at the pharmacy benefit sector, a potential first step into disrupting the healthcare sector next.
Amazon simply is a behemoth. And while the benefit of that size to the economy – or competitors – is up for debate, that fact is a very strong reason to buy Amazon stock.
AMZN Stock Will Rebound
Again, there are valuation concerns here, that perhaps should not be dismissed out of hand. Amazon stock is valued like few other stocks in the market.
But the point is that Amazon, as a company, is like few, if any, other companies in the world. It’s 23 years old and still growing sales at a 20%+ clip. It has a reach that no other company, past or present, can match. And though it hasn’t been perfect (remember the Fire Phone?) Amazon usually has been successful as it has expanded from simply being an online bookstore.
That expansion isn’t over. That success isn’t over. And neither is the bull run in AMZN stock.
As of this writing, Vince Martin has no positions in any securities mentioned.
