Although I was very positive on Amazon.com, Inc. (NASDAQ:AMZN) heading into 2017, I had my doubts about AMZN stock hit $1,000.
“If you’re buying Amazon stock hoping it will hit $1,000 in 2017, it’s highly likely you’ll be disappointed,” I wrote Nov. 28, 2016. “If you’re buying Amazon for the next decade or more, it’s highly likely you’ll be delighted.”
Boy, was I wrong.
Well, not about the fact Amazon stock is an excellent long-term play, but certainly about the trajectory it took in 2017.
Amazon stock first hit $1,000 on May 30. It finished 2017 at $1,169.47, up 56% on the year, more than double the S&P 500.
That’s what I call performance. No wonder Jeff Bezos is the world’s richest person. The amazing thing is 2017’s return was only the fifth-best over the past 11 years.
AMZN first hit $100 on Oct. 23, 2009. It took approximately 91 months to get to quadruple digits leaving investors wondering how long it will take for the Amazon stock price to hit quintuple digits.
In 2009, I’m sure nobody was thinking about $1,000. Yet, here we are in 2018, and the possibility of hitting $10,000 seems very real.
Over the past five years, Amazon’s grown its revenues on a compounded basis by 23% annually. At the end of September, Amazon’s TTM free cash flow was $8.1 billion; five years earlier it was $1.1 billion, a compound annual growth rate of 49% or double its revenue growth.
At the end of 2012, Amazon’s market cap was $114 billion or 104 times free cash flow. Today, its got a $568 billion market cap or 65 times free cash flow.
You can talk about lack of earnings all you want, but from a free cash flow perspective, AMZN stock is cheaper than it was five years ago.
So, let’s assume that Amazon continues on this growth trajectory. Its revenues will be $454 billion (23% CAGR) with free cash flow of $60 billion (49% CAGR).
At 104 times FCF, it would have a market cap of $6.2 trillion or $7,889 per share [based on 491 million shares outstanding growing by 10% a year]; at 65 times FCF it would have a market cap of $3.9 trillion or $4,930 per share.
By either valuation projection, it likely won’t hit $10,000 in the next five years. However, I’m sure some pencil-pushing writer like myself said the same thing in 2009.
Valuation projections mean little in the real world.
Amazon’s business is so much stronger today than it was in 2009.
Sure, some things could upset the apple cart over the next few years including Alibaba Group Holding Ltd (NYSE:BABA) taking market share outside China or brick-and-mortar retail figuring out the omnichannel experience, but until that happens, AMZN stock will continue to deliver fantastic growth.
In my estimation, if it took 7.5 years to get to $1,000 from $100, I see AMZN stock getting to $10,000 somewhere between January 2023 and January 2025.
If you own AMZN, you might want to hope I’m equally wrong with my long-term prediction as I was with my thoughts for 2017.
InvestorPlace readers have voted Amazon to be the best stock to own in 2018 for the second year in a row. If they’re right, it will go a long way to getting Amazon stock to $10,000 within 7.5 years.
Happy New Year!
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.