Sarah Brady
Updated on: October 12, 2024 3:07 am GMT
If you’re on the lookout for a reliable growth stock with the potential to enrich your investment portfolio, Amazon stands out as a top contender. With a burgeoning retail business and a flourishing cloud service branch, many experts believe now is an opportune time to invest in the e-commerce giant, especially with shares currently trading around $201.
Why Invest in Amazon?
When considering investment opportunities, looking for companies with robust growth prospects and a loyal customer base is essential. Amazon fulfills these criteria with its vast customer reach and diverse revenue streams. Here are three key factors that highlight Amazon’s attractiveness for potential investors.
1. Massive Customer Base
Amazon has cultivated a substantial community of loyal customers, which significantly enhances its growth potential. As of June 30, 2024, the company reported impressive figures regarding its Prime membership:
- U.S. Prime Members: Approximately 167 million
- Global Prime Members: Over 200 million
- Purchase Frequency: An estimated 42% of U.S. Prime members make between two and four purchases every month.
This frequent customer engagement drives a consistent revenue flow, evidenced by Amazon’s staggering $604 billion in trailing-12-month revenue. With subscription services contributing $42 billion and online store sales amounting to $237 billion, these numbers illustrate the expansive market that Amazon continues to dominate.
2. Expanding Services
Amazon has diversified its offerings, recently enhancing delivery options to improve customer experiences, including same-day and grocery deliveries for Prime members. This expansion not only retains existing customers but also attracts new ones.
In addition, Amazon Web Services (AWS), the company’s cloud computing division, provides another significant revenue stream. Although AWS accounts for less than 20% of Amazon’s total revenue, it is responsible for about two-thirds of the company’s operating profit. The growing demand for cloud services positions AWS for substantial future growth, as it has room to capture a larger market share.
3. A Growing Market
The e-commerce market is on an upward trajectory, set to reach $6 trillion this year and projected to climb to $8 trillion by 2028. This growth represents a wealth of opportunities for Amazon. With its established infrastructure and global reach, Amazon is well-poised to capitalize on the expanding market.
Furthermore, AWS’s revenue rose by 19% year-over-year last quarter, highlighting the service’s potential. With an estimated 80% of enterprise data still stored on-premises, there remains a significant opportunity for growth in cloud services.
A Promising Financial Outlook
Investors often scrutinize a company’s valuation measures, and Amazon is no exception. The stock traditionally appears expensive based on price-to-earnings (P/E) ratios; however, this metric can distort the overall picture. Instead, investors should consider the price-to-cash flow (P/CFO) ratio. Currently:
- P/CFO: 18.4
- Cash from Operations: Tripled over the last five years to about $107 billion.
As the cash from operations rises, so too does the stock’s value, suggesting potential for future high returns. Even after doubling in value over five years, Amazon shares are trading at their lowest P/CFO valuation in over a decade.
Investment Takeaway
Given Amazon’s competitive advantages and its potential growth trajectory, it presents a compelling case for new investments, especially for those with limited capital — like an investor looking to allocate $200. With the stock trading slightly below its recent high of $201, now might be an advantageous entry point for prospective buyers.
Investors shouldn’t overlook Amazon’s diversified model, blending retail and cloud services. As both sectors continue to expand, Amazon’s stock could follow suit, translating into higher returns for shareholders down the line.
Amazon is a smart choice for anyone looking to grow their money over time. The company has a solid way of doing business and lots of chances to grow in new markets. This makes investing in Amazon a good idea for the future.
