While the stock market overall has managed to soar back from the March 2020 crash and again hit all-time highs, many stocks have been more volatile over the past few months. Sky-high valuations have led some investors to pull back, and various factors -- including mixed economic indicators -- have many wondering if the market may experience another full-blown crash at some point soon.
No one really knows when such a crash will happen. But that makes it even more important to be prepared. There are various ways to adjust your portfolio for such an event, including buying stock in companies that perform well even under challenging circumstances and bounce back quickly when broader crashes occur. One such company is Amazon (AMZN 1.52%).
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Amazon is accelerating growth
As a company gets bigger and more established, invariably sales growth typically begins to level off. The market for the company's products becomes saturated and/or competition increases. Large, stable companies usually develop into value stocks, since they still have a lot of market share and bring in a ton of cash. That excess cash often gets distributed to shareholders as dividends, which keeps the stock desirable to a certain investor class.
Amazon has been bucking this natural progression to value stock status, posting some of its best growth quarters in years (including 44% year-over-year growth in each of the last two quarters), despite increased competition from reopening retail outlets that had been hampered by the pandemic. And Amazon solidified its lead in digital sales, even as competitors also benefited from an increased shift to digital shopping.
Strong consumer desire for the company's core of essential products is how it scored high sales during the pandemic, and a market crash doesn't have much effect on that. Outgoing CEO Jeff Bezos revealed in his last letter to shareholders that the number of Prime subscriptions has reached 200 million, which will help keep sales high. But there's more to Amazon than just e-commerce.
What industry won't Amazon disrupt?
Amazon's success can be attributed to the successful implementation of a long-range vision. That vision and how it was and still is put to use are why you can expect a lot more growth from Amazon.
The company has been trying to get into physical retail for a long time, and that's more important than ever today as customers demand an omnichannel shopping experience. Amazon is making headway here, opening its first Amazon Fresh store last year and now operating 12 locations in California and Illinois. It also operates five other types of storefronts for a total of almost 100 stores.
That doesn't seem like a lot considering Amazon's size, but the company has the cash and power to take its time and get it right before it plows millions (or billions) of dollars into a much larger physical retail presence. It also doesn't need to right now because digital is still carrying the business.
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Amazon is taking its vision to other business endeavors as well, such as medication distribution with Amazon Pharmacy and Just Walk Out technology, which powers its own cashierless stores as well as other retail operators (through licensing).
Amazon is also beefing up its video-on-demand operations to compete with Disney and Netflix as the streaming wars intensify. In late May, Amazon announced that it's acquiring Metro Goldwyn Mayer (MGM) studios and its more than 4,000 film titles for $8.5 billion, providing a significant boost to its content library.
Don't forget Amazon's cloud services
One of the major products Amazon nurtured over its less than three decades of operations is Amazon Web Services (AWS), headed by CEO-to-be Andy Jassy. AWS only accounted for 13% of sales in Q1 of 2021, but almost half of operating income. AWS has developed several partnerships with large clients in Q1, including Disney (to support the Disney+ launch) and the National Hockey League. AWS is still in growth mode, most recently announcing three new availability zones in the United Arab Emirates, and plans to open 18 more globally.
Investor takeaway
Amazon stock has rewarded investors time and again, and there's every reason to believe it can continue to do so. And even though shares are priced at more than $3,200, with a price-to-earnings ratio of 61 times trailing 12-month earnings, those same shares are trading at their lowest valuation levels in more than five years. That gives investors a balance of value and growth, as well as security during uncertain times.
