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Amazon stock: 3 reasons I’d buy today

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Edward Sheldon
·3-min read
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Closeup ruffled American flag representing US stocks and shares
Closeup ruffled American flag representing US stocks and shares

Amazon (NASDAQ: AMZN) is a stock that tends to divide opinion. Some investors see it as a ‘must-own’ growth stock. Meanwhile, other investors see it as too expensive.

Personally, I’m bullish on Amazon. I think it’s a great long-term buy-and-hold stock. With that in mind, here are three reasons I’d buy AMZN stock today.

Online shopping is set to rocket

The first reason I’m bullish on Amazon stock is that the company is the global leader in the online shopping space. And this industry looks set for massive growth in the years ahead.

Indeed, according to GroupM, the global retail e-commerce market is set to grow to around $7trn by 2024 and $10trn by 2027, from around $4trn in 2020. This means that, while Amazon’s sales have grown significantly over the last decade, there’s still plenty of room for further growth in the e-commerce space in the years ahead.

It’s worth pointing out that Amazon has the potential to increase its market share significantly in many countries. Here in the UK, its e-commerce market share is still under 10%. By contrast, in the US, its market share is around 40%.

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Cloud computing looks set for huge growth

The second reason I like Amazon stock is that the company is the most dominant player in the cloud computing space. This is another industry with massive growth potential.

According to Markets and Markets, the global cloud computing market size is expected to rocket from $371bn in 2020 to $832bn by 2025. That represents growth of an incredible 17.5% per year. Again, there’s plenty of potential for Amazon here too.

Amazon is growing rapidly

Finally, Amazon’s recent gains has been very impressive. Its latest results (Q4 2020) showed growth of 46% in online store sales, a 57% rise in third-party seller services, growth of 35% in subscription services, and a 28% lift in AWS cloud services. For a company with a market-cap in excess of $1.5trn, that’s an outstanding level of growth, in my view.

Amazon stock: risks

Now, like any stock, there are also risks to the investment case.

I won’t deny Amazon is expensive. Currently, the consensus earnings per share (EPS) forecast for this year is $47.12. That means, at the current share price, Amazon sports a high forward-looking price-to-earnings (P/E) ratio of 65.6. That valuation adds risk to the investment case. If growth slows, the stock could fall.

It’s also worth noting that Amazon is prone to large pullbacks. Declines of 20% or greater are very normal here. This kind of volatility means the stock isn’t likely to be suitable for risk-averse investors who prioritise capital preservation.

I’ve bought Amazon shares

Overall however, I think the long-term growth story here is very attractive. I’ve made Amazon a top 10 holding in my own portfolio and I plan to hold the stock for a long time.

The post Amazon stock: 3 reasons I’d buy today appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021