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Why You Could Buy Amazon Stock for Long-term


One of the frequently asked investment questions is that should we buy Amazon stock for the long term as an investor?

The answer would be yes but don’t expect overnight gains in this counter.

The fact is that, Amazon is the type of stock that will help you clock gains only over the longer term in a slow and steady manner. It is, after all, a retail player and is invariably guided by the cycles of spike in sales. A holiday time or special discount season will no doubt bring in higher gains and relatively greater footfall.

The reality is that the trend will never be same and as a long-term investor one needs to be geared up for tackling the interim losses as well as the long-term gains. In case you are looking for instantaneous gratification, the Amazon stock cannot be the right bet, but over an extended period, this is the type of counter that is sure to yield the profit for its investors.

The company’s strong fundamentals, stable business model and management policies drive a robust revenue model that is sure to bring in profit for the investors who put their trust and faith in this stock.

The market is full of lucrative stock picks that promise amazing returns. But the problem is as an investor it sometimes becomes difficult to identify a truly long-term play. The challenge, in this context, often is to look for counters that do not just promise growth today but will continue to provide growth opportunities for an extended period. This is either possible through identifying stocks that have a long standing business model or counters where the continuous research work ensures that there are newer channels of growth to bet on and book gains.

In this context, you could look to buy Amazon stock for long-term investment as the stock is a great bet in the retail segment. The fact that this retail e-commerce giant is pretty much one of the biggest online hubs for buying and selling goods is what further adds to the appeal of the stock. They are moving ahead at an aggressive pace and looking at advancing both in terms of technology as well as core retail business.

They are also expanding the scope of their reach quite aggressively with creating a presence in video content, artificial intelligence and even cloud computing. Some of the independent research analysts have pegged the revenue growth to be close to 20% in 5 years.

So then, the question arises that should you buy Amazon stock for the long term as an investor? The answer would be yes but don’t expect overnight gains in this counter. The fact is that, this is the type of stock that will help you clock gains only over the longer term in a slow and steady manner. It is, after all, a retail player and is invariably guided by the cycles of spike in sales.

A holiday time or special discount season will no doubt bring in higher gains and relatively greater footfall. The reality is that the trend will never be same and as a long-term investor one needs to be geared up for tackling the interim losses as well as the long-term gains. In case you are looking for instantaneous gratification, the Amazon stock cannot be the right bet, but over an extended period, this is the type of counter that is sure to yield the profit for its investors.

The company’s strong fundamentals, stable business model and management policies drive a robust revenue model that is sure to bring in profit for the investors who put their trust and faith in this stock.

Good Chance to Buy Amazon Stock Price But the Price Is Too High Now.

Do Analysts Recommend to Buy Amazon Stock?

With many brokerages giving an average $1000/share target price, maximum analysts are bullish on the stock. Over 24 brokerages have an ‘Outperform’ rating on the counter as opposed to 23 last year and a larger number of brokerages have also increased their Buy call on the stock.

However, the Hold call on the stock has gone down, and one brokerage has issued a ‘Sell’ call on the basis of valuations. Some of the analysts are of the view that while the long-term prospects remain good, the interim valuation seems stretched and investors might actually get lower entry points going forward.

The heartening fact nevertheless is that the stock has seen a distinct 22% rise in its overall stock price on an average basis and for a long-term investor; this is the kind of gain that really matters and makes a difference to the overall investment profile. This $1000 level is of course according to the median level. The highs in this context are estimated to go as much as to $1200 level while the lows are seen close to $500 level. That justifies the lone ‘Sell’ call.

Some analysts expect the Amazon stock to dip this low before bracing for stronger and more sustained gains. Therefore it goes on to even further strengthen the conviction you could look to buy Amazon stock for long-term.

Business Profile

Well, you can surely then question why you should buy Amazon stock for long-term?

Well, the reason is absolutely simple and clear. Indeed you must back the stock on account of its wide-ranging business profile. This Seattle-based e-commerce and cloud computing major started with an online bookstore and then diversified gradually to DVDs, CDs, Blu-rays, downloading & streaming of audiobooks.

Their range then went on to includes video games, other software, electronics, clothing, appliances, furniture, toys, jewelry and even grocery items. Even in terms of innovation, Amazon stock has been in the forefront. Be it the Kindle e-readers, the Fire tablets or even the Fire TV, Amazon stock today has the rare distinction of being the world’s biggest cloud services provider.

They also possess the most commendable cloud infrastructure of all times. The Amazon stock Basics brand is also known for sale of some low-end products like USB cable, etc. The stupendous range of products coupled with the aggressive marketing ensures that Amazon stock is a market leader in the retail e-commerce segment.

The fact that they introduced several trends including one-day delivery and Amazon stock Prime further sealed their position as market leaders.

The Retail Revolution

For a long-term investor, it becomes even more interesting and important to study the Amazon stock brand of excellence and how they managed to beat competition so effectively. In fact, if you see in recent times, it has even given established brands like Macy’s a run for their money and made other long-term online players like eBay pretty much redundant in terms of customer preference and choice.

In fact, the new revamped Amazon stock is also set to introduce a separate fashion line and as per some leading market studies like the Cowen’s report project, this online phenomenon to even claim the top retail spot in the US in months to come.

The same report even adds that they expect a 30% jump in Amazon’s clothing and accessory sale and Macy’s is like to clock in an alarming 4% drop during the same time. For the next five years, analyst projection indicates a whopping 200% jump in Amazon’s top line in 5 years to well above the $60 billion mark.

Perhaps this strong sales expectation is what’s drive the strong ‘Overweight’ call on the stock. Morgan Stanley, one of the better-known brokerages have claimed that the stock has a potential upside of well above 22% going forward. While some have pointed out the lack of touch and feel buyer experience, others are of the opinion that the value for money pricing coupled with the strong return policy upholds customer interest and does not materially hamper sales.

The fact that this e-retail major has successfully started operations in many parts of the world apart from its base market in the US and even giving local e-commerce retailers a run for their money speaks volumes about the success of their business model and the potential for it to excel even more going forward. Therefore if you as an investor want to lock long-standing profit, buy Amazon stock for long-term.

Amazon stock Prime

Talking of a superior customer experience, you cannot complete that discussion without mentioning the ‘Amazon stock Prime’ service. This service has also contributed well to persuade the investors to buy Amazon stock for long term. If the customer has always been the King, it is the Amazon stock Prime service that makes them feel majestic and absolute lord and master.

A subscription based model, customers have to pay just $99 every year for guaranteed and quick and free shipping on select items. Sometimes the shipping takes flat 2 days from the warehouse to your house. That’s not just it; the Amazon stock Prime also allows member many other perks like free access to the Kindle Owners’ Lending Library and even Amazon stock Video.

While most other retailers offer free shipping, the 2-day shipping is a decided advantage for consumers, especially for those are buying $50 or $100. China is the next biggest target market for Amazon. They are promoting the advantages big time for both local goods and a wide range of international products.

The current number of Prime members has now reached as much as 65 million, and the company set the target to double the overall membership in the next couple of years. A greater number of prime members also enhance the revenue outlook of the company.

Revenue & Profit Target

That narrows down the discussion to overall business basics and perhaps provides the most compelling arguments on why you could consider buying Amazon stock for long-term. PS seeing a significant.

In fact, Goldman Sachs has put out a projection of 60% growth in the cloud business going forward. If that happens, it will instantly spike the revenue north of $3 billion. Looking at the average growth rate that the company has been clocking consistently, the forecast is for a 100% plus upmove on a year on year basis.

Even the drop in Amazon’s recent revenue numbers below analyst estimates is more an indicator of the company’s investment into future growth verticals rather than any alarming fall in popularity or similar trend. The company has been actively making more allocation towards improving on its video platform and channelizing greater growth in that segment. This is also a big indicator of the company’s keen understanding of market dynamics. The EPS or the earnings per share are also indicating a robust growth pattern.

If you are analyzing the stock’s fundamentals, the EPS number is very crucial as it breaks down the company’s performance to the smallest point and helps you to assess and decode the complex medley on the balance sheet a lot better and more clearly. In many ways, the EPS is also an indicator of the future trend and a healthy EPS is always symptomatic of profitable times ahead for the company. It incorporates the biggest gains and takes into account the losses incurred as well.

Core Valuation

That study reveals that the at the moment the Amazon stock stock is trading at 75x forward earnings, and that is a huge premium for a stock with projected long-term growth of around 50%. It is good news as well as bad news in one go. Bad news because of the fact that at current levels, the stock is far from fair value and is almost invariably set for a correction to more accepted fair value levels. But that only means you could look to buy Amazon stock for long-term on any such dip to further strengthen in this stock that is set to take over the global retail roadmap in a very pronounced manner.

This is particularly interesting given the fact Amazon stock is currently in a place where it is vulnerable from many fronts, be it Google Netflix or Microsoft. How digital media and cloud services are set to pan out in years to follow is anybody’s guess and given the unpredictable nature of the technology sector, the absolute road ahead is anybody’s guess. However, the advantage to buy Amazon stock for long term is the simple fact that you are well geared to face the future with the best and most relevant product line-up.

Margin Worries

However, if there is one thing that might worry you deter you to buy Amazon stock for long-term is the simple fact that there is very little room for error given how thin the margin is for this e-commerce giant. It’s net profit margin is as low as 1% and by simple logic, it would not take too much to actually sink below the red line in the stock market parlance. But there is a silver lining, as the analyst estimates suggest, any such price dip at this juncture is all the more reason to bet more on the stock and increase one’s position in this retail and e-commerce biggie.

Conclusion

Therefore it would be safe to conclude that you can buy Amazon stock for long-term as it offers the most compelling growth story going forward. Given the fact that it is already a large cap and the share of e-commerce in the overall US economy is the only minuscule further cements its slot. The growth potential is no way more than any assessment can project, and overall prospects can only look northwards going forward in every manner.

In fact, the Amazon stock story can be almost likened to a sunflower’s story. Just like the Sunflower, which follows the sun right from the moment it blooms and continuously changes direction to adjust to the gradual change in positioning, Amazon stock has its focus fixed on the future. It is following trends and advances in technology, and through sheer hardcore, R&D is staying on top of it. Not only is it a trendsetter it is also a trend creator that others are so interested in copying. That in itself is a sign of a true leader and an impactful large cap player in the market.

The Amazon stock Go is the next catalyst that the market is looking to embrace with bated breath. In an almost nerve-racking pace, this simple innovation is supposed to act as the biggest disruptor in the online grocery space. It would not be wrong to term Amazon stock as the hub of innovation with imagination. The core concept of Amazon stock Go concerns customers to go to a store and scan products and leave making the transaction absolutely cashless. The money gets deducted from the online wallet.

But the exact execution of it will be time taking, and till that time, it only makes sense to buy Amazon stock for long term.



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