Early Amazon shareholders have gotten rich beyond their wildest dreams.
Based on its dominance in multiple industry verticals, Amazon (AMZN -0.08%) might be in a league of its own. Thanks to unbelievable growth and a share price that has skyrocketed 9,280% in the past 20 years, this giant tech enterprise currently carries a market cap of $1.75 trillion. That’s higher than the gross domestic product (GDP) of all but 11 countries.
Many investors probably wonder if adequate returns are still in the cards going forward. Is it too late to buy Amazon stock?
Amazon’s growth is far from over
Since Amazon raked in a whopping $604 billion in net sales in the past 12 months, you might question how much more growth this business can achieve as we look to the future. After all, it becomes more and more difficult to increase revenue on an already massive sales base.
According to Wall Street consensus analyst estimates, Amazon is projected to increase revenue at a compound annual rate of 10.8% between 2023 and 2026. It’s always a smart idea to take these forecasts with a grain of salt, but this is an encouraging outlook, no doubt.
It’s not hard to believe that meaningful growth will continue. Amazon has numerous secular tailwinds that are helping propel it forward.
The first trend is the rise of online shopping, an area Amazon truly dominates. According to Statista, 38% of all e-commerce spending in the U.S. happens on Amazon.com. And given that 84% of retail spending in the U.S. still happens in person, Amazon should see steady growth for a long time.
With Amazon Web Services (AWS), the company’s leading cloud computing platform that commands 31% of global market share, Amazon benefits from the shift in IT spending from on-site to off-premises. This industry is also slated to register tremendous growth. Coupled with Amazon’s immense artificial intelligence (AI)-related investments meant to bolster AWS, this segment is poised for outsized success.
Investors can’t ignore the changing media landscape. The internet has paved the way for streaming entertainment to take over, and Amazon Prime Video is a leading service. According to Nielsen data, it’s only behind Alphabet‘s YouTube and Netflix in terms of daily TV viewing time in the U.S.
An under-the-radar, but booming, area of Amazon is digital advertising, which saw revenue soar 20% in the latest quarter to $12.8 billion. Thanks to billions of motivated buyers visiting Amazon.com monthly, the business can display valuable ads.
These powerful secular trends still have long expansion runways over the next decade and beyond. Amazon is positioned to take advantage of them all.
Buy the dip
From the start of 2024 to July 2, the date Amazon’s stock hit a peak, shares were up 32%. But it’s been a different story since then. The stock currently trades 17% off its all-time high.
The setup for prospective investors is quite favorable. Shares go for a price-to-sales ratio of 2.9. This represents a discount to the trailing five- and 10-year average valuation multiples.
Besides the potential for strong revenue growth, Amazon is also poised to see huge profit increases. Management has focused intensely on cutting costs, and so far, it’s working. The company generated $14.7 billion of operating income in the second quarter, up 91% year over year.
Between 2023 and 2026, consensus analyst estimates call for earnings per share to rise at a compound annual rate of 36.8%. This means it’s not too late to buy shares. In fact, there is still potential to earn adequate returns from owning Amazon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Netflix. The Motley Fool has a disclosure policy.