This business is one of the largest in the world.
Warren Buffett is known for allocating capital with a value-oriented mindset. This strategy has worked well for this great investor over the past few decades.
However, many investors seem to be attracted to companies that are posting rapid sales and profit growth. These companies could be big winners. And although the market is currently in record territory, there are still opportunities to take advantage.
Here’s why Amazon (AMZN 2.50%) is the ultimate growth stock to buy for $1,000 right now.
Sales and profit growth
The company is benefiting from some strong long-term trends driven by the way technology is changing the economy. Amazon has been a leader in e-commerce for many years. And now, nearly 40% of online spending in the US goes through the company’s website. There is still considerable room for expansion to take market share away from brick-and-mortar retail.
Amazon Web Services (AWS) gives the company top market share in the important cloud computing industry. This segment has typically been a growth driver, as sales rose 19% in the most recent quarter (Q2 ended June 30). Grand View Research believes the global cloud market will be worth $2.4 trillion by 2030, up from $602 billion last year, providing a favorable backdrop for AWS to continue expanding.
These two major areas of the business help explain why Amazon’s revenue grew at an average annual rate of 22.7% from 2013 to 2023. Even in 2022, when rising interest rates hurt many businesses, the business still posted near-high sales. Sales increase by 10%. That number could accelerate further if the Fed becomes more accommodative.
Historically, Amazon has foregone large profits in the name of aggressively investing in growth initiatives. This clearly had a surprising effect, as the company’s stock price completely skyrocketed. But in recent years, Amazon has focused on increasing profits. And investors should be very satisfied.
Operating profit for the first half of this year totaled $30 billion. This represented a significant increase of 141% over the previous year. Management is working to build a more efficient organization, especially after Amazon invested heavily to expand its logistics network in the midst of the pandemic.
Wall Street is very optimistic, expecting sales and earnings per share to grow 10.7% and 36.5% annually from 2023 to 2026, respectively. The combination of sustained double-digit sales growth and strong profit increases is what shareholders want. From any business you are looking to own.
good value for money
Amazon’s fundamental drivers are in place. However, you should also consider the rating before making a decision.
As of this writing, the stock is trading at a forward price/earnings ratio (P/E) of 38.9. That doesn’t seem like a bargain. In fact, it’s 21% more expensive than the entire Nasdaq 100 index.
But in my opinion, Amazon is worth paying what seems like a premium. As mentioned above, earnings are expected to grow rapidly over the next few years, so the future P/E ratio will look more attractive.
Additionally, it’s not hard to argue that this isn’t much of a risk to owning a business. Over the years, Amazon has built a broad economic moat that protects it from threats of competition and disruption. The company has unparalleled scale in its logistics operations, its online marketplace has strong network effects, and the Amazon brand is a highly valuable key competitive asset.
It’s true that solid investment ideas can sometimes be hidden in plain sight. Amazon is a clear example.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Neil Patel and his clients have no position in any stocks mentioned. The Motley Fool has a position in and recommends Amazon. The Motley Fool has a disclosure policy.
