In the grand scheme of things, $500 isn't a fortune. But it can be a good opening investment for life-changing returns in the stock market. Let's discuss why Amazon (AMZN 3.43%) and Luckin Coffee (LKNC.Y 2.92%) could turn your money into significantly more over the long term.
Amazon
While Amazon has recovered sharply in 2023, the shares are still down a whopping 37% over the last 12 months, allowing investors to buy the dip. While the embattled internet company faces challenges in its core e-commerce and cloud computing businesses, new synergistic opportunities could help power the next leg of long-term growth.
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First an online book store, then a generalist e-commerce marketplace, and now a diversified tech giant that gets most of its profit from cloud computing, Amazon has a track record of successfully reinventing itself. It can pull this off because the economic moat it has built for e-commerce (its scale and network effects) is easily transferable to new industries.
In the fourth quarter, Amazon's digital advertising business grew 19% to $11.6 billion. And it is poised for continued success because of its audience of over 300 million shopping-motivated users and the valuable data they generate.
Amazon is also attempting to use its scale to tackle healthcare through the $3.9 billion acquisition of primary care network One Medical, which could help the company disrupt the $349 billion drugstore market if it gains regulatory approval.
With a forward price-to-earnings (P/E) multiple of 58, Amazon stock isn't cheap from a valuation perspective. This is largely due to inflation and other macro challenges crushing profitability in its e-commerce business. But these headwinds are cyclical, not permanent. And new growth drivers like advertising and healthcare could help power a rebound.
Luckin Coffee
With its share price up 148% over the last 12 months, Luckin Coffee single-handedly saved my portfolio from going negative during the brutal 2022 bear market. And while shares in this Chinese coffee shop have already performed well, its rapid growth rate and compelling international expansion might mean the bull run is just getting started following earlier corporate troubles.
Luckin Coffee's third-quarter earnings highlight its impressive business momentum. Net revenue soared 66% year over year to $548 million as the company opened new locations and enjoyed healthy same-store growth (a rate of 19.4%) at the stores it already operates.
Luckin Coffee's franchise-driven business model helps it rapidly expand its footprint, giving it an edge over rival coffee chain Starbucks, which owns and operates all its stores. Luckin can also drive continued growth through a possible international rollout.
Unconfirmed reports suggest the company could soon open locations in Southeast Asian markets such as Indonesia, Singapore, and Thailand. All these jurisdictions have large Chinese diasporas and tourism traffic, which could present a ready market for its products.
With a P/E multiple of 46, Luckin Coffee's valuation still looks quite reasonable, considering its rapid growth rate. Net income swung from a loss of 23.5 million RMB to 523.6 million RMB ($74.3 million). And investors should expect significant profit growth as the business scales up.
Which stock is best for you?
While Amazon and Luckin Coffee both have the potential to produce excellent gains out of a $500 investment, they serve different investment strategies. With its smaller size and rapid growth rate, Luckin Coffee looks more likely to generate multi-bagger returns over the long term. But Amazon's size and track record of profitability may give it more safety.
