Although Amazon (NASDAQ:AMZN) has been a fantastic company to own over the past couple of decades, but more recently it just hasn’t been the case. Stocks are up just 10% over the past three years (as of June 3).
This modest gain, which lags behind the Nasdaq Compositethe returndoes not take away from the fact that this e-commerce and the cloud computing giant is one of the most dominant companies on planet Earth. And that’s why investors should always keep it on their radar.
Where will Amazon stock be in three years?
Online shopping
It’s a surprising statistic, but about 38% of all online spending in the United States happens through Amazon.com. This is significantly higher than its rivals in second and third place (Walmart And Apple, which represent approximately 6% and 4% respectively. This lead only shows you Amazon’s stranglehold on e-commerce.
I have no doubt that this will still be the case in 2027. By relentlessly focusing on customer obsession, Amazon offers shoppers millions of items at low prices. And with its extensive logistics network, fast and free delivery is offered in a cost-effective manner, which only enhances the consumer experience. It was recently reported that Amazon has already added 16 million square feet of warehouse space this year in an effort to bolster its delivery capabilities.
In the United States, online purchases account for less than 16% of all retail spending. This share increased from 10% exactly five years ago. Assuming this slow and steady rise continues, this provides Amazon with a long-term tailwind to capture more sales growth.
Amazon’s growth drivers
Amazon is arguably one of the most innovative companies on the market. Although it is primarily known to the general public as an e-commerce company, there are other segments that will continue its expansion at a rapid pace.
Many investors are familiar with Amazon Web Services (AWS), the company’s industry-leading cloud computing division. AWS typically posts double-digit revenue growth. And in the most recent quarter (Q1 2024, ended March 31), it recorded a superb operating margin of 37.6%.
Investors should expect AWS (which accounted for 16% of revenue in 2023) to become a more important sales and profit driver in the future. The shift from on-premises to off-premises technology infrastructure, coupled with many customers’ desire to integrate artificial intelligence capabilities in their operations, provides AWS with a tailwind.
Then there’s digital advertising, an area where Amazon has seen huge success thanks to its popular online marketplace. Ads were introduced to the Prime Video streaming service in January, providing another valuable asset to monetize.
Over the past quarter, digital ads generated $47.2 billion in annualized revenue. This scale places him behind only Alphabet And Metaplatforms in terms of domestic market share.
Valuation changes
It doesn’t take much convincing to appreciate Amazon’s operations. It dominates several industry verticals and has significant growth potential.
But investors need to consider valuation in their analysis before determining what to do with the stock. Although Amazon hasn’t been too big of an investment over the past three years, since the start of 2023, shares are up 112%. As a result, the valuation is no longer as attractive as it was about 12 months ago, when the stock was trading at a price-to-sales (P/S) ratio of just 2.4.
Today, the P/S multiple stands at 3.2. That may seem expensive, but it’s in line with the stock’s 10-year average. Given the potential for significant earnings and revenue gains over the next three years, investors will likely be rewarded if they add Amazon stock to their portfolio.
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and its clients have no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms and Walmart. The Mad Motley has a disclosure policy.
Where will Amazon stocks be in 3 years? was originally published by The Motley Fool
