Why I’m Not Selling My Amazon Stock, Even After a 500% Gain

Why I’m Not Selling My Amazon Stock, Even After a 500% Gain

In 2016, I started accumulating shares of Amazon (NASDAQ:AMZN). I only reduced my position once over the next eight years, and I’m currently sitting on a nearly 500% gain on my remaining shares.

Amazon is now my largest holding and represents 6.5% of my portfolio. I was tempted to reduce that stake again, but decided not to sell any more shares for four simple reasons.

Why I’m Not Selling My Amazon Stock, Even After a 500% Gain

Image source: Amazon.

1. The steering wheel always turns

From 2016 to 2023, Amazon’s revenue grew at a compound annual growth rate (CAGR) of 23%, while its adjusted earnings per share (EPS) grew at a CAGR of 42%. This growth was driven by the expansion of its online marketplaces and Amazon Web Services (AWS), the world’s largest provider. cloud infrastructure platform.

Amazon has subsidized the growth of its low-margin online marketplaces through growing operating profits from AWS, and this strategy has allowed it to expand its Prime ecosystem with loss-making strategies such as discounts, free delivery and digital streaming services. Backing from AWS, along with the gradual expansion of its higher-margin advertising business, gives Amazon a broad advantage against its less diversified retail competitors. I believe the flywheel effect will continue to drive Amazon’s expansion.

2. Its growth rates are stabilizing

Amazon experienced a big growth spurt during the pandemic, as more people shopped online and more businesses signed up for its cloud-based services. But those tailwinds dissipated as the pandemic passed. Inflation and rising interest rates subsequently dampened consumer purchases and caused many companies to limit their cloud spending.

In 2022, Amazon’s revenue grew only 9% as the company suffered a net loss following its declining investment in Rivian Automobile. But in 2023, its turnover increased by 12% thanks to the return to profitability. This acceleration is due to the stabilization of its North American and international retail segments, which benefited from higher delivery times, higher advertising sales and its expansion into higher-growth markets. AWS growth has also accelerated again as more companies upgrade their cloud infrastructure to support heavier workloads, expanded language models, and new cloud services. Generative AI.

For 2024, analysts expect its revenue and profits to increase by 11% and 56%, respectively. main activities stabilize. Simply put, better days lie ahead as the macroeconomic environment improves and its cloud business continues to grow.

3. Its margins are widening again

Amazon’s operating margin fell from 5.3% in 2021 to 2.4% in 2022 as its e-commerce and cloud computing businesses grappled with macroeconomic challenges. However, its operating margin reached 6.4% in 2023 thanks to laying off tens of thousands of employees, strictly managing its infrastructure costs and implementing other cost-cutting measures.

In its North American business, Amazon generated more sales from its higher-margin third-party sellers instead of its lower-margin first-party marketplace, consolidated multiple deliveries into single packages, and reduced logistics costs by regionalizing its networks . Its international operating margins also stabilized it and reduced expenses, while its advertising business generated higher margin revenue from its sponsored products and streaming video ads.

Analysts expect Amazon’s operating margin to reach 9.7% in 2024, then reach double digits in 2025 and 2026, as the company continually streamlines its operations. This is a clear sign that economies of scale are occurring.

4. It offers great long-term growth potential

Amazon shares may not look cheap at 40 times forward earnings, but they still have plenty of room to grow. The global e-commerce market could further grow at a CAGR of 16% from 2024 to 2029, according to Mordor Intelligence, while Precedence Research expects the global cloud infrastructure market to grow at a CAGR of 12% from 2023 to 2032.

As a leader in both markets, Amazon could continue to generate double-digit revenue and profit growth in the years to come. It is expected to continue crushing smaller e-commerce and cloud computing companies as it expands into adjacent markets.

Amazon remains a great long-term investment

Amazon is not immune to macroeconomic headwinds, it could be targeted by regulators, and it faces many competitors. However, I believe she can overcome these challenges – as she has many times in the past – and rise even higher in the coming years.

Should you invest $1,000 in Amazon right now?

Before buying stocks on Amazon, consider this:

THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Amazon was not one of them. The 10 selected stocks could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $677,040!*

Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns May 28, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions at Amazon. The Motley Fool posts and recommends Amazon. The Mad Motley has a disclosure policy.

Why I’m not selling my Amazon stock, even after a 500% gain was originally published by The Motley Fool

Source Reference

Latest stories