Why you Should buy Amazon Stock

The following is a guest blog post:

When it comes to e-commerce, none can quite compare to the size and respect of Amazon. From being a simple online book retailer to a massive marketplace and Internet solutions company.

Indeed, as many other companies have come and gone and investors have jumped on numerous trends, Amazon’s share price has been climbing at a steady pace.

Gone were the days of irrational exuberance where Internet companies were valued at numerous multiples of their earnings. Amazon has proven their profit model time and time again.

Of course, for many investors, one of the key questions that they may be asking is whether Amazon has potentially reached a peak and will eventually stop growing. Many trading signals are pointing to a possible correction.

Could investing now be too late? Does the share price still have steam and can Amazon keep growing. You would be surprised by the answer.

We will take a look at some high level fundamental analysis of Amazon’s market position and growth prospects to address the question most effectively.

Total Retail Sales

Although one would think that in 2017, most people would be buying online, this is not entirely the case. In fact, in the USA, 91% of total retail sales are done offline through brick and mortar retailers.

This means that there are still a large number of Americans who have to move to buying online almost exclusively. When looking at other countries in the emerging world like India, the numbers are even more impressive.

For example, Amazon has recently made a big push into India which many people see as the holy grail of the Ecommerce future. With over 1 billion consumers and growing internet coverage, Amazon is poised for much more growth.

In fact, eMarketer research firm has an estimate that global e-commerce sales will increase to more than $4 trillion by 2020.

Shopping Traffic

Among consumers, the Amazon name has become almost synonymous with online shopping. When someone wants to buy something online, they gravitate right towards Amazon and search for their goods there.

In fact, about 55% of consumers begin their search for goods online right on the Amazon platform. This means that Amazon is taking away some business from search engines.

Sites like Google, Bing and yahoo have their share of product search traffic decline from about 21% of all searches to about 16% according to a BloomReach report.

What this shows is that consumers already associate Amazon as their first port-of-call if they wanted to buy something. This kind of brand awareness and consumer buying power is quite remarkable.

Consolidation & Liquidation

In the rest of the Brick and Mortar retail industry there is continual downsizing as they struggle to compete with the online retailers.

For example, Sears plans to close about 150 Sears and Kmart stores as they try to cut about $1bn in costs in 2017. However, this is unlikely to stop the slide in same store sales. In fact, many analysts are of the view that Sears may cease to exist in a few years.

Similarly, JC Penny has said that they will also close about 140 stores over the year. This is in fact about 15% of the current store base at JC Penny.

In a direct confirmation of the struggle to compete, JC Penny’s Marvin Ellison stated that “We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers”.

There are similar trends at other stores such as Office depot, Macy’s and Kohls. These trends show two things. Firstly, that Amazon is clearly taking over the traditional retail world. Secondly that as consumers have less choice to shop, they will naturally gravitate towards online shopping and hence Amazon.

Conclusion

Although Amazon’s share price has reached all-time highs, the view among most analysts is that there is still much more space to go.

Jeff Bezos is one of the most capable CEOs in the industry and is steering Amazon into different businesses and markets like not many others can.

18 thoughts on “Why you Should buy Amazon Stock

  1. This makes me so sad. So many are losing their homes and businesses. I live in Seattle and Amazon has a reputation of driving their employees like slaves.

    • Hi Kelly,

      It is sad to see neighborhoods, jobs and businesses lost to a disruptor like AMZN. I guess on the flip side you could argue that AMZN created many new jobs that previously did not exist. AMZN is well known and documented to have a very rigorous working environment. I guess it takes a certain individual to stick with them long term. Thanks for sharing your thoughts.

  2. I wok in the online business, and can see that there are a lot of developments going on there that will change the retail channels as we know it today.

    However, I don’t believe it’s one or the other. There is more than enough space to have both brick and mortar stores, and online stores. Although the first has to innovate more and focus on giving the customer a specific experience. Those who are stuck in the past, will always fall behind. But that’s with every market and not only with the retail industry.

    Interesting article to read!

    • Hi Divnomics,

      Well said. I agree that brick and mortar will have a place in our lives for the foreseeable future but not necessarily in their current form nor in the quantity we have today. No matter how digital our world becomes we still live in a real physical place and we will still seek out experiences from time to time. That may be in the form of going out to eat instead of delivery, travel, etc.

    • Hi Jay,

      AMZN is on a roll that’s for sure. The only threat I could see down the pipe would be from our own U.S. government and antitrust lawyers. AMZN has the potential to come under fire as MSFT did back in the 90s with talk about breaking up the company. While I don’t hold AMZN I do like it long term.

  3. Well, I’m a big fan of Amazon and of competition. I think Amazon is like Google. When people want to search something on the internet, I think most people go straight to Google. When people want to buy something online, I think most people go straight to Amazon. The stock price is a little out of my reach. I also don’t like the fact that they pay dividends. But, I love their business model and agree with the post that there’s definitely room for growth for Amazon.
    Dividend Portfolio recently posted…Emergency FundMy Profile

    • Hi DP,

      I am totally with you regarding AMZN. I like the company a lot and think it will continue to grow for many more years to come. That being said, owning a stock that pays no dividend doesn’t really appeal to me. There might be a spot for some high growth, no dividend paying stock in my portfolio one day but right now I am focused on building up a passive income stream more than anything. Thank you for sharing your thoughts.

  4. No offence, but I think someone has been drinking the Kool-aid. I love amazon as a company. they build great products, and they’re killing the competition. but as a business? amazon is riding high on valuation and not profits. i think they still have a lot more room to grow, but over the long run it’s still hard to justify this valuation.
    Troy @ Market History recently posted…Comment on U.S. stock market on May 23, 2017: thoughts and outlook by TroyMy Profile

    • Hi MH,

      I think with companies like AMZN, TSLA, NFLX and others it can be hard to apply “traditional” valuation metrics. There’s no doubt the market is rewarding these companies with sky high stock prices and PEs simply based on their continued stratospheric growth. Of course, should the market begin to fail or a quarter of growth comes in at a lackluster pace those prices will tumble and may be a good time to pick up some shares and ride the long term wave these techs have going for them. Even traditional companies like SBUX command high valuations based on continued hyper growth. Sometimes common sense and sentiment don’t coalesce. Thank you for commenting.

  5. DH,
    Interesting article to find on your site given the lack of a dividend. However, I’ve been toying with the idea of taking a stake in AMZN myself given that I believe it is one of the truly great companies out there that will be around for years to come.
    Take care,
    – Ryan
    Get Rich Brothers recently posted…Early 2017 Dividend GrowthMy Profile

    • Hi GRB,

      As you know I only hold dividend paying stocks but I’m not against starting a position in a company like AMZN for the long haul. There’s little doubt that AMZN will be a name we’ll be talking about in ten years time. That being said, I will only consider AMZN after we see a big sell off. I will “time” that purchase because AMZN and other high flying tech names should come down the most from their lofty valuations. As always, I appreciate your comment.

  6. DH,
    I also agree that Amazon is a great buy. Although I don’t hold any particular share of AMZN (no Dividends) I am however looking at a couple of ETF that contains a large percentage in AMZN like XLY (15.28%-weight). One thing everyone knows Amazon for is it’s online shopping experience.

    But there is one thing that most people don’t know about is their AWS (Amazon Web Service). AWS is a beast and have most of the marketshare in the cloud spaces. There are many businesses that run on AWS, that many people don’t realize that they are using AWS as their infrastructure.

    I’ll be most people don’t know that Amazon owns, Audible, IMDB, Zappos, Goodreads, Twitch.tv
    Micro Dividends recently posted…26 May 2017 – PII, WSR, IGD, NAVI, M, WSM, BUD, SBUX, BMOMy Profile

    • Hi MD,

      You bring up some great points. Most think that AMZN is merely an online retailer but it is so much more. Besides AWS and the numerous web properties you mentioned there seems to be a never ending grab for the AMZN tentacles. Most recently there has been news about AMZN getting into the pharmacy space too. I do like the prospects of AMZN for the long haul but I won’t buy any at these levels. While I am not a market timer, I’ll gladly wait and wait and wait for AMZN to fall before I consider buying. Thank you for commenting.

  7. I also like Amazon. Great company. Another reason for liking Amazing is that it´s killing other peers share-prices. Just look at Tractor Supply. Down more than 30% this year, some for good reason, but Tractor Supply is a niche store, and Amazon will not be able to kill this bussines. The amazon-effect will give us some great shareprices in the future. And btw, would love to own Amazon, but not going to buy at this price.
    Stockles recently posted…Dividend Income is up 69.53 % since last yearMy Profile

    • Hi Stockles,

      I do like the long term prospects of AMZN very much. Like you, I do not plan on chasing this stock at current levels. Let it continue to march higher without me. When we do get a real correction those high flying tech stocks will fall down the hardest potentially giving us much better buying opportunities if you are looking at the FANG stocks. As always, I appreciate your comment.

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