Growth stocks -- and the general indexes -- have rallied this year, and one of the world's most well-known companies has led the gains. I'm talking about e-commerce and cloud computing giant Amazon, (AMZN 0.87%) which is heading for an increase of more than 70%.
You may wonder if Amazon, as a growth stock, is simply benefiting from investors' renewed interest in this type of stock and may risk losing momentum -- or if this trend can last. It's impossible to predict what a stock will do in the short term, but by looking at a company's overall strength and prospects, investors can get a decent idea of how the company may perform over the long term.
Considering this, now is a great time to buy Amazon. In fact, I've got three reasons why you should do it before 2024.
Image source: Getty Images.
1. Amazon is successfully managing its recovery
Amazon had a difficult time last year as rising inflation weighed on its customers' wallets and on the company's own costs. Amazon even reported its first annual loss in almost a decade. But the company took action as soon as things started to sour, with a plan to revamp its cost structure and focus on efficiency and growth.
As part of the effort, Amazon cut tens of thousands of jobs, increased investment in high growth areas like technology infrastructure and artificial intelligence (AI), and reorganized how it delivers packages in the U.S. -- moving to a regional model from a national one. All of these and other steps have been bearing fruit, as we can see in the most recent earnings reports.
In the second and third quarters, Amazon reported gains in net sales and a return to profitability. In addition, free cash flow shifted to an inflow from an outflow a year ago.
All of this is great news because it demonstrates Amazon's resilience and shows the company knows what to do during tough times. These efforts should help it thrive in a better economic environment, too.
NASDAQ: AMZN
Key Data Points
2. Signs from profit driver AWS look bright
Amazon Web Services (AWS), the cloud computing unit, has traditionally driven profit at Amazon. But in recent times, this business faced a slowdown as clients reined in spending. Times may be improving, though.
In the second quarter, Amazon said clients had shifted to deploying new projects. And in the third quarter, the company said AWS growth "continued to stabilize." AWS operating income and sales both rose in the double digits in the quarter.
This is, of course, a positive. And what makes me even more optimistic about AWS' future is Amazon's investment in AI. The company now offers AWS clients many tools to help them seize the power of AI without having to do all of the heavy lifting. For example, Amazon Bedrock offers clients top foundation models they can easily customize for their own purposes.
AWS' recent rebound, leadership in the high-growth cloud market, and focus on AI make me confident about its ability to drive Amazon's profit over the long run.
3. Amazon is reasonably priced right now
Why is it a good idea to get in on Amazon right now, rather than waiting a few weeks? Because today, considering the two points above and Amazon's solid track record, the stock is very reasonably priced.
Amazon shares trade for about 54x forward earnings estimates -- which isn't shocking for a growth stock. And they used to trade for more than 80x forward earnings a couple of years ago.
Of course, it's possible Amazon stock will remain at a reasonable valuation for a while, but if it doesn't -- which also is possible -- you may miss out on a top buying opportunity. It's never a great idea to try to time the market and scoop up a stock at its very lowest -- because it's a nearly impossible job. And over the long term, it won't even make much of a difference in your overall returns.
With Amazon's price looking so reasonable, right now is a fantastic time to buy.
