3 Reasons to Buy Amazon Stock Like There's No Tomorrow

Few companies have achieved the level of dominance in their industries quite like Amazon (AMZN). Its massive user base and impressive success have made it a favorite among investors. Over the last couple of decades, its stock has skyrocketed by 10,130%, although it has recently seen a dip of 8% from its all-time high as of November 22.

With a market capitalization of $2.1 trillion, you might be wondering whether this "Magnificent Seven" stock remains a strong investment choice. Here are three compelling reasons to consider buying Amazon like there's no tomorrow.

1. Amazon's Staying Power

When a company possesses an economic moat, it signifies high quality and longevity in the market. Amazon boasts several competitive advantages that have played a vital role in its success.

The online marketplace connects shoppers, merchants, and advertisers, becoming increasingly valuable as it grows. This results in beneficial network effects.

After years of significant investment, Amazon has built an extensive logistics network that offers cost-saving benefits when delivering products to consumers.

Furthermore, the diverse range of products and services available on Amazon provides almost limitless interaction opportunities with customers. This enables the company to gather valuable data to inform its strategic decisions.

If you are a long-term investor focused on buy-and-hold strategies, prioritizing companies with a moat is critical. Such businesses not only have longevity but can also fend off competitors and new market entrants, safeguarding against disruption.

Amazon excels in maintaining its market position, with its leadership team strategically guiding the company for future success, similar to its achievements in the past.

2. Powerful Growth Drivers

Investing in companies that benefit from strong macro trends is typically a smart approach. However, it is less common to identify a business that is capitalizing on multiple trends simultaneously, which is precisely what Amazon is doing.

Amazon is widely recognized as the leader in the e-commerce space, capturing 38% of online sales in the United States. This commanding lead positions the company advantageously to capitalize on the ongoing growth within the e-commerce sector.

Additionally, competitors find it challenging to match Amazon's rapid and free shipping on millions of items. With the recent introduction of Amazon Haul, the company is further enhancing its ability to address the needs of price-conscious shoppers.

Moreover, Amazon Web Services (AWS) stands as a leader in the global cloud computing sector and has typically been the primary avenue for growth and profitability for Amazon. According to Grand View Research, the cloud market is projected to grow by about 21% annually through 2030, eventually reaching a whopping $2.4 trillion.

This indicates that numerous companies still have to transition their IT expenditures from on-site to off-premises solutions, a shift that AWS is well-positioned to exploit throughout the decade.

3. Valuation and Earnings

Amazon is not only one of the largest companies globally but also one of the top-performing stocks of all time. Despite this, its current valuation remains attractive. The price-to-sales ratio stands at 3.4, which is consistent with its average over the past ten years.

Although the stock trades at a price-to-earnings ratio of 42.2, which may not seem like a bargain, it is important to consider that Amazon's diluted earnings per share (EPS) surged by 94% year-over-year during the first nine months of 2024. Furthermore, analysts expect EPS to grow at a compound annual rate of over 21% from 2024 to 2026.

Given this impressive growth trajectory, the current valuation appears justified, offering yet another reason to consider adding Amazon stock to your portfolio.

Amazon, Investing, Growth