Investing doesn't have to be complicated. Sometimes, it's about checking a few important boxes. Amazon has checked those boxes for years, and that's primarily why it's one of the best-performing stocks Wall Street has ever seen. But what are those boxes, and does Amazon still have what it takes to make investors money? Let's explore whether Amazon is a buy, sell, or hold today.
Amazon's competitive moats remain strong. Starting as an online bookstore in the late 1990s, Amazon has evolved into a one-stop shop for consumers across America. Today, you can buy almost anything from Amazon, and roughly 200 million households pay for Amazon's Prime subscription to access the company's wide array of products, services, and perks. Expanding beyond e-commerce, Amazon introduced Amazon Web Services (AWS) in 2006, which has become the world's leading cloud platform.
Amazon generates over $600 billion in annual revenue across its various businesses, dominating U.S. e-commerce with an estimated 38% market share and controlling 31% of the global cloud market. Size brings various competitive advantages for Amazon. Its extensive supply chain and logistics network enable faster delivery than other e-commerce stores, while its scale allows for leverage with sellers to achieve the lowest prices.
In AWS, companies receive more value from Amazon compared to competitors, aside from perhaps Microsoft’s Azure, which holds a 25% market share. Currently, the biggest threat to Amazon might not be competitors but U.S. regulators who may consider breaking up Amazon's dominance. Despite maturing, Amazon's growth remains impressive. The company's ability to grow revenue at a double-digit rate, given its size, is remarkable.
E-commerce still represents only 16% of total retail spending in the United States, providing Amazon with a significant growth opportunity as this segment expands. Additionally, the shift from on-premise computing to the cloud is ongoing, with experts predicting the global cloud services market could grow by 21% annually through 2030. Besides these core businesses, Amazon is expanding into media to enhance its advertising business and securing rights to live sports. The company is also venturing into the healthcare field.
With deep pockets and a willingness to invest, Amazon continues to push into new categories. Valuation is crucial when considering Amazon's stock. High-quality stocks like Amazon need a fair price for long-term returns. Currently, Amazon's shares trade at a forward P/E of 38, with analysts expecting earnings to grow by an average of 23% annually over the long term. A PEG ratio of 1.6 suggests that the stock is reasonably priced for its expected earnings growth.
Furthermore, Amazon's aggressive reinvestment of profits into the business often means that earnings alone don't tell the whole story. Evaluating the stock against the cash flow Amazon generates paints a picture of a stock near its lowest ratio in a decade. In conclusion, Amazon checks all the boxes for a great investment. The company remains dominant in e-commerce and leads in the cloud, with both segments still offering growth opportunities. Amazon's expansion into new areas and its reasonably priced stock make it a no-brainer buy for any long-term investor.
