Over the past decade, Amazon (AMZN 2.94%) shares have crushed the broader market, soaring 782%. But even with the outstanding long-term performance, the stock is 26% off its peak from 2021, presenting a potential buying opportunity.
As of this writing, shares of Amazon trade at a price-to-sales multiple of 2.6, which is substantially below the five-year trailing average of 3.2. Besides that attractive valuation, there are other valid reasons to consider buying this top e-commerce stock right now.
Let's take a closer look at Amazon's business, where it's headed, and what this could all mean for investors.
Superior products and services
Amazon's mission is to be the world's most customer-centric company. Even in his first shareholder letter after the business had its initial public offering in 1997, founder and then-CEO Jeff Bezos wrote that "we will continue to focus relentlessly on our customers." More than 20 years later, this strategic priority has resulted in one of the world's most dominant enterprises.
One of the clear reasons to buy Amazon stock today is because of the superior products and services the business offers. Consumers get access to fast and free shipping on millions of items by shopping on Amazon.com. This incredibly vast selection, coupled with low prices, has created a phenomenal experience for customers. In fact, Amazon's success in this area is best exemplified by the fact that nearly four out of every $10 of sales that occur online in the U.S. happen on its website. Walmart, a distant second, has a 6% share.
While Amazon doesn't pride itself on offering special or unique goods like Etsy or eBay, it has crushed the competition when it comes to speed and convenience. And this is exactly what consumers want in a world that is only becoming increasingly digital.
Moreover, this reality makes Amazon's Prime membership an extremely valuable choice for customers. Besides access to free and fast shipping, these members get access to top-notch streaming content and discounts at Whole Foods locations, among other perks.
The business also excels among enterprise clients with its Amazon Web Services (AWS) division, the leader in cloud computing with a third of the global market. Sales for the segment usually grow faster than those of the company overall, and the wide operating margin makes AWS the primary profit driver for Amazon.
AWS has long used artificial intelligence (AI) to better serve customers, which clearly shows that the business isn't behind in the so-called AI wars. In fact, thanks to AWS having household names like Netflix, Southwest Airlines, and Capital One as clients, there is ample opportunity to introduce new AI features with immediate utility and adoption.
This also leads to tremendous amounts of data collection, something CEO Andy Jassy thinks is a huge advantage when it comes to AI progress. "AWS not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data store than anybody else," he said on the Q2 2023 earnings call. That shows the amount of potential AWS has as we look ahead.
Accelerating growth
Investors should be encouraged by Amazon's latest financial results. Company revenue in the three-month period that ended June 30 totaled $134 billion, an 11% year-over-year gain. That increase marked the second straight quarter that revenue growth accelerated. This is a possible indicator that the business is starting to recover from the 2022 slump, when the Federal Reserve aggressively hiked interest rates and inflation was at higher levels.
Management expects revenue to rise between 9% and 13% in the current quarter. If Amazon can post growth toward the higher end of that range, it would continue the trend of improving gains. Operating income is forecast to nearly triple to $7 billion (at the midpoint) in Q3, thanks to ongoing operational improvements and cost reductions in the North America and International segments.
Amazon looks to be benefiting from some positive momentum right now. This is another key factor that makes the stock a smart buy today.
