The analysts set the bar high for the Amazon.com, Inc. (NASDAQ:AMZN) Q1 2018 earnings report. Jeff Bezos and company blew them away sending Amazon stock to an all-time high.
In November 2016, I came to the conclusion that Amazon stock wouldn’t hit $1,000 in 2017, mainly because I felt the markets were ready for a big correction — the S&P 500 gained almost 22% in 2017 — but that didn’t happen.
Instead, AMZN stock hit $1,000 on May 30.
Is Amazon the Perfect Stock?
Like people, no stock is perfect, but you’ve got to admit Amazon comes pretty darn close. Up 34% year-to-date through Apr. 27, Amazon stock’s had seven up years over the past decade to three down years, averaging an annual total return of 69% in the up years and -24% in the down ones.
I believe the best individual investors are those people who over a decade or longer are right about a stock’s direction at least 60% of the time. But what makes them really great is their winners produce returns that double their losers.
You own 10 stocks. Over a decade, six go up, and four go down. The six that go up average 20% annual returns; the four that go down average -10%. Overall, $100,000 invested in the 10 stocks ($10,000 per stock) would be worth $385,451, a compound annual growth rate of 14.5%.
Stocks are no different.
Amazon’s a great company doing a lot of interesting things and disrupting a bunch of different industries, but it’s the wins versus losses for Amazon stock, in my opinion, that makes it a near-perfect investment.
Just Like Costco
In March, I argued that Amazon could do with Prime what Costco Wholesale Corporation (NASDAQ:COST) has done with its membership, driving all kinds of revenue from products and services sold exclusively to its members.
As part of Amazon’s earnings announcement, the company said it is raising the annual Prime membership from $99 to $119 for new members May 11 and existing members Jun. 16, generating an additional $800 million in annual revenue.
It’s possible that Amazon will take those extra dollars and move Prime from two-day free shipping to one-day free shipping.
What I can say is that Amazon has now raised the annual fee from $79 to $119 (51% increase) in the span of five years. By comparison, Costco’s raised its membership fee in 2017 by $5 to $60, the first increase since November 2011.
I love Costco’s business model, and it’s a great stock to own, but it doesn’t hold a candle to Amazon whose AWS business generated $1.4 billion in operating income in the first quarter, a segment that all but ensures Amazon will continue to profitably grow its business.
If Costco’s business model is good, Amazon’s is great.
Bottom Line on Amazon Stock
I’m sure someone somewhere has an argument why you shouldn’t own AMZN stock. I’m just not that person.
I honestly thought Apple Inc. (NASDAQ:AAPL) was the best buy-and-hold tech stock to own, but Amazon’s latest earnings report suggests Amazon could get to a trillion-dollar market cap first.
Is Amazon the perfect stock?
It’s as close as you’re going to get in the ninth year of a bull market.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.