If you are just not discovering the earning potential of Amazon.com Inc. (AMZN), than you have a lot of reason to be excited..
And I say that because I am still seeing a huge amount of upside ahead.
Let’s start with item number 1. When we spoke on January 24, I noted that much of Wall Street was cool to the stock for years.
But I have a more current example of a high profile stock “guru” who missed the boat completely. And not that long ago.
When AMZN crossed the $1,000 mark on May 31, 2017, Jim Cramer, went on TV to bash the stock. The host of CNBC’s Mad Money said “psychologically” $1,000 is a lot to pay for a stock he felt was getting ahead of itself.
The stock has more than doubled since then, reaching a closing high of $2,021.
Nowhere to Go but Even Higher Up
Now then, let me address a question I get from investors all the time. Whenever we discuss a stock that has had Amazon-like returns, someone usually says, “is it still too late to get in?”
As much as I love time travel movies, it’s an inescapable fact that we can’t start all over in 1997 when Amazon first went public.
But we can take a look at the company’s operations, leadership, cash flow and its sales and earnings growth. That way we can quickly determine how much upside is still ahead.
In fact, this principle is so important that it forms Rule No. 5 of my five-part system for finding market-crushing tech leader. And that rule states to “target stocks that can double your money.”
I can see that with Amazon because this is a very well run firm that keeps finding new avenues of growth way beyond a straight up e-commerce play.
Just look at what happened back in 2002. Amazon had bought so much server equipment for its data centers that it decided to start renting excess space to other businesses.
Today, Amazon Web Services (AWS) is nothing short of a cloud-hosting juggernaut. In the most recent quarter, AWS had sales of roughly $7.7 billion. That’s more than seven times the revenue in the comparable quarter five years ago.
AWS had more than $9 billion in revenue in last year’s third quarter. That’s approaches eight times the unit’s estimated salesin the comparable quarter five years ago.
Yes, I understand that AWS now faces tough competition from Microsoft Corp. (MSFT). But the most recent data show that AWS still rules the hosting sector with three times the market share of Microsoft.
Gartner says Amazon has 47.8% of market share for renting out cloud infrastructure. Microsoft came in second at 15.5%.
Finding New Growth Everywhere
Amazon has more going for it than e-commerce and cloud services. For instance, the firm has moved into AI-driven smart speakers and online music and video streaming.
And then there’s the $13.4 billion it paid for upscale grocery chain Whole Foods in 2017. It recently invested just shy of $1 billion last year for PillPack, moving in into the online-pharmacy business.
Those are two massive sectors with lots of money up for grabs. Groceries generate $675 billion in sales a year just in the U.S. while the drug industry brings in about $1.2 trillion a year in global revenues.
And Amazon remains the undisputed King of E-commerce, its core business. In the third quarter alone, Amazon increased sales by 24% from the year-ago level to $70 billion, beating forecasts.
We’ll have a better sense of its recent progress when it reports earnings on January 30. If it misses forecasts, view this as a chance to buy on the dips.
But remember, in our last chat about Amazon I noted this is the kind of stock that can make you a millionaire.
On May 26, 1997, this game changer was going for $1.50 a share. It hit a recent closing high of $2,021 last July 15.
That’s a 134,633% return, enough to transform $10,000 into $13.5 million.
And while we’re not likely to see the stock repeat that return, it does have at least one more double ahead. Over the last three years, it has grown earnings per share an average of 104%.
If we cut that in roughly in half to be conservative, we’d see the stock double in less than 18 months. So, let’s be extra cautious and just assume 25% earnings growth.
At that rate, the stock would double in less than three years. I believe we can conservatively forecast two doubles for this stock in as little as a decade.
In other words, as I have been saying for some time now, it’s still not too late to score big gains on this market-crushing stock.
Cheers and good investing,
Michael A. Robinson