Shares of internet giant Amazon (NASDAQ:AMZN) got hit hard in late 2018 amid rising recession fears and escalating trade tensions. But in 2019, AMZN stock has bounced back tremendously. In 2019, AMZN stock has climbed 18%. That’s a good run.
![](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
In other words, while AMZN stock has had a good 2019, it hasn’t done well over the past 12 to 16 months. Instead, it’s been sluggish during that period, as the shares haven’t gained much ground.
Does this sideways trading pattern mark the end of the non-cyclical bull run of AMZN stock?
No. Don’t read too much into this streak. Even great stocks hit turbulence every once in awhile. This is only turbulence. In the big picture, there are still two main reasons why Amazon stock can and will head higher after this consolidation period.
Here are those two reasons.
AMZN’s Fundamentals Remain Healthy
The most important reason why the bull run of AMZN stock isn’t over is because the company’s long-term growth fundamentals remain exceptionally favorable.
Amazon is the world’s leading e-commerce platform. It’s true that the growth rates of Amazon’s e-commerce business is slowing, and competitors like Target (NYSE:TGT) and Walmart (NYSE:WMT) are catching up. But Amazon’s e-commerce business still appears to be growing at a 15%-plus rate, while the company still controls just under 50% of the U.S. e-commerce market. Further, that market comprises only 10% of the total retail sales in America, so there’s plenty of room left for the segment to expand at this point. As a result, AMZN’s e-commerce unit is likely to continue to deliver 15%-plus growth.
At the same time, it has other, higher-margin growth businesses that continue to be very successful. The two most important of these are Amazon Web Services (AWS) and digital ads. AWS is a hyper-growth cloud business which: dominates the cloud infrastructure market with market share of over 30% and is delivering top-line growth of 35%-plus,. Furthermore, it generates operating margins of 20%-plus. All signs indicate that pretty much all companies will shift their entire workload to the cloud in the future. Only one-fifth have so far. Thus, Amazon’s high-margin cloud business has a great deal of room to expand.
On the digital-ad side, AMZN has a relatively small but rapidly growing digital-ad business, mostly thanks to the fact that it has a ton of data and a ton of traffic. Those are the two most important ingredients of digital-ad businesses, which tend to have very high margins. Facebook (NASDAQ:FB), which generates most of its revenue from digital ads, has 80% gross margins. So as Amazon’s digital-ad business grows by leaps and bounds over the next several years, the unit’s profits will rise tremendously.
I maintain that AMZN can generate earnings per share of at least $125 by 2025. Multiplying that EPS by 20, which is the average price-earnings multiple for growth stocks, yields a 2024 price target for AMZN stock of $2,500. Thus,, it appears that Amazon stock still can climb much further in the long-run.
The Macro Environment Remains Favorable for AMZN
The second big reason the non-cyclical bull run of AMZN stock remains alive and well is because the macro environment remains favorable to AMZN.
There are really two things at play in this area. First, today’s persistently low interest rates inflate the value of growth stocks because they increase the present value of future profits by lowering the rate used to discount those profits. Thus, today’s low-rate environment is very beneficial for growth stocks.
Second, although all growth stocks should outperform in the low-interest-rate environment (as they have for the past decade), growth stocks with highly certain outlooks will outperform way more. That’s because growth is elusive and uncertain; what may be a high-growth stock today could very well fall flat tomorrow. Therefore, investors are willing to “pay up” for growth stocks with highly certain outlooks As a result, these stocks should doubly outperform.
Amazon checks off both of those boxes. The company is unequivocally a growth company, with 20%-plus revenue growth last quarter and 90%-plus profit growth. And given Amazon’s leadership position in the continuous-growth e-commerce and cloud markets, and its rising importance in the non-cyclical-growth digital ad market. AMZN also definitely is highly certain to keep growing rapidly for a long time,.
Thus, in today’s market, AMZN is the quintessential growth stock with clear visibility to high growth for a long time. That type of stock should continue to outperform in today’s macro environment.
The Bottom Line on AMZN Stock
Amazon stock has been, still is, and will remain a winning stock over the long-term. The sluggish performance of the shares over the past 12 to 16 months is nothing more than near-term turbulence in that long-term uptrend. Amazon stock suffered similar turbulence in 2015-16. Once this turbulence passes – and it will soon – AMZN stock will resume its march higher.
As of this writing, Luke Lango was long AMZN, TGT, and FB.