Choosing a growth stock for long-term wealth accumulation requires more than just identifying a company on an upward trajectory. Certain qualities are vital — such as exceptional growth potential and a loyal customer base that sustains the business even in economic downturns.
Unraveling the Appeal of Amazon
One standout contender that ticks all the boxes is Amazon (NASDAQ: AMZN). Let’s delve into three compelling reasons why this tech giant is a promising investment choice.
1. Revenue Resilience through Customer Loyalty
Statista reports that Amazon boasts a massive U.S. Prime membership of around 167 million, with over 200 million subscribers worldwide. A substantial 42% of U.S. Prime members make regular purchases each month. These figures underpin Amazon’s colossal trailing-12-month revenue of $604 billion as of June 30, 2024.
Amazon’s revenue streams extend beyond retail. The company rakes in substantial income from subscriptions and its online store, with initiatives like same-day delivery and expanded grocery services further enhancing purchase frequency and boosting revenue potential.
Additionally, Amazon Web Services (AWS), the company’s cloud division, leads the global market with millions of customers across 190 countries. Despite accounting for less than 20% of Amazon’s total revenue, AWS contributes a significant two-thirds of the company’s operating profit, attesting to its profitability.
2. Boundless Growth Horizons
The burgeoning e-commerce sector, valued at $6 trillion presently and projected to hit $8 trillion by 2028, presents a vast playing field for Amazon to thrive. AWS, on the other hand, demonstrates staggering potential, with revenue soaring 19% year over year to reach $98 billion in trailing-12-month revenue. The lion’s share of enterprise data is yet to transition to cloud services — a realm where AWS shines, promising exponential growth.
Given the lucrative avenues in e-commerce and cloud computing, Amazon is strategically poised for sustained expansion and robust revenue growth prospects.
3. Amazon’s Stock: An Ascent Awaits
Amazon’s stock may seem exorbitant from a conventional price-to-earnings perspective, reflecting the company’s focus on maximizing long-term cash flows over immediate earnings per share.
Assessing Amazon’s price-to-cash flow from operations (CFO) ratio — currently standing at 18.4 — reveals an intriguing valuation. Despite its stock doubling in the last half-decade, Amazon is trading at its lowest P/CFO valuation in over a decade. This indicates substantial room for growth and increased profitability.
Amazon’s soaring cash from operations, now at $107 billion, aligns with the stock’s upward trajectory. As the company capitalizes on burgeoning e-commerce and cloud computing opportunities, continued growth in cash from operations is likely to propel the stock to new heights.
The current stock price, slightly below its recent peak at $201, presents an opportune moment for investors eyeing substantial returns with limited capital.
Considering an Investment in Amazon
Before diving into Amazon stock, contemplate the following:
The Motley Fool Stock Advisor recently highlighted the 10 best stocks poised for remarkable returns, with Amazon notably absent from the list. This curated selection of stocks holds the potential to deliver significant gains in the foreseeable future.
Reflect on past triumphs like Nvidia’s inclusion in a similar list back in 2005. A $1,000 investment at the time would have burgeoned to $729,857, spotlighting the immense growth potential that strategic investments can yield over time.
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Seize the opportunities that lie ahead — explore the potential growth Amazon embodies and consider the substantial returns it may offer investors.
Note: Historical data for Stock Advisor returns is as of September 9, 2024
