Why should you invest in Amazon?
Tech giants are considered to be excellent investment for every category of investors. Investors were recently noticed to be more interested on the second quarter earnings of Amazon after Alphabet’s profit blowout. The tech giant’s shares are said to have sky rocketed by approximately 52% due to strong demand for ecommerce growth, cloud services as well as because of physical trade witnessing slow death. The stocks were further boosted by Prime Day stocks that position Amazon to enjoy financial benefits this holiday season to a great extent.
Although Amazon’s 2nd quarter results may be a bit disappointing, the stock is likely to be tough to bet against. The market professionals do state some reasons as to why earnings Amzn investors do not have to bother about anything.
Reasons for Amazon to be considered to be a fabulous investment destination
- Amazon World: Amazon already has occupied around 20% of online retail sales in the United States and has growing worldwide presence. This company does enjoy strong mobile positioning as well as infrastructure benefits that facilitate same day delivery (SDD) and next day delivery. This is what makes Amazon to be a winner among its competitors and derive a lion’s share in the market.
- Increasing popularity of digital retail: It is without doubt that the number of people relying upon online shopping is only increasing at a fast pace. The future holds good for online shopping and only will expand with time. The experts further conclude that online retail will increase by 100 basis points annually from current 11% online penetration level.
- More expansive business: Prospects, according to the experts include apparel, consumer staples, Amazon web services, international expansion, advertising, industrial/office supplies, and digital media offerings. Specific opportunities like consumer staples and international expansion are likely to offer expansionary headwinds, while Amazon web services does offer boost to margin! Amazon can be very much termed to be a budding monopoly online retail business.
- Financial quality: Although Amazon is stated to have traded consistently at premium valuation level, which is average forward price to earnings 35-40 times multiple, since 2007, its high earnings/share quality (huge free-cash flow conversion) and sector leading forward earnings/share growth outlook. This is stated to be a good market multiple premiums that it enjoys.
- Top management team: The management team of Amazon is well known to be positive and do share great consistency. They also enjoy excellent strategic and operational track record, have greater focus on long term share holder orientation, customer service and innovation.
- Profit margin upswing: Profit margins of Amazon are found to be volatile always, quarter to quarter. However, with time, they are expected to head higher. The experts conclude that Amazon’s margins should expand to 2003-2010 average of 6% level including long term levels in high single digit percentage range. They view ongoing mix shift to 3rd party sales, improved terms and scale to be FBA (Fulfillment by Amazon) driven. Amazon Web services and Prime are considered to be the catalysts to provide gross margin expansion.
Therefore, the above are few of the reasons for Amazon to be a fabulous investment decision!
