Some investors are understandably nervous about buying stocks when they are at all-time highs. While it looks like the stock will be vulnerable to a decline at those levels, it's best to look at the bigger picture. Over the long term, if this is a high-quality business, the stock should continue to gain value.
Amazon (Nasdaq: AMZN) It recently reached a new all-time high in early May, but has fallen by 2 percentage points since then. However, I think Amazon stock is a great buy right now. this is the reason.
All her works enjoy incredible success
Amazon has been firing on all cylinders as a business. It divides its business into three segments: North America, International, and Amazon Web Services (AWS). In previous quarters, at least one of its three main segments did not perform well, but that is not the case now.
Amazon's e-commerce side, which is segmented by geography, is much broader than its online store. It also includes fast-growing sectors such as third-party vendor services, advertising services, and subscription services. In fact, Amazon's online store segment grew only 7% year over year when all regions were combined. However, these other segments helped North American and global sales rise by 12% and 10%, respectively.
Although this is respectable growth, profits in these divisions were extreme. The North American segment generated nearly $5 billion in operating income (up 455% year over year), and the International segment generated its first operating profit ($903 million) since Q2 2021.
This is proof that Amazon's focus on efficiency continues to have a huge impact and will lead to higher profits throughout 2024 if they stay on their current path. If Amazon's trajectory continues, 2024 will be an exciting year on the commercial side of the business.
AWS is back in growth mode after a difficult 2023
While the business side of the business generates the bulk of the revenue, AWS's cloud computing business brings in the profits. In 2023, AWS struggled as its customers were focused on optimizing their spending. According to management, this trend has largely ended, and new workloads far outweigh the declining ones.
In the first quarter, AWS revenue rose 17% to $25 million, the highest revenue total evern cloud computing industry. This growth rate represents the fastest since the fourth quarter of 2022. Revenues are also up significantly Increase AWS operating incomeWhich rose by 84% to $9.4 billion.
These numbers clearly show why Amazon is at an all-time high. Revenues are up by double digits, and operating income is rising incredibly quickly as well. This combines with the stock poised to set further record highs if this success continues into the second quarter and beyond.
Amazon stock is trading at a premium
However, one drawback may be stock valuation. Amazon is trading at a high valuation if you use its forward price-to-earnings (P/E) ratio.
Amazon stock is difficult to value because its profits are growing rapidly due to efficiency improvements coupled with strong revenue growth. As a result, the forward P/E ratio is more of a shot in the dark than most investors would like.
However, I think investors can confidently buy Amazon at this valuation because analysts only believe Amazon will produce earnings per share of $4.53 over the next 12 months. In the first quarter alone, Amazon generated $0.98 per share, and the first quarter has historically been one of Amazon's weakest quarters. As a result, I think a forward P/E ratio of 40 is a conservative estimate, and the stock is much cheaper than that in reality.
Although Amazon recently set a new record high, I am confident that it can continue to rise further throughout 2024.
Should you invest $1,000 in Amazon now?
Before you buy Amazon stock, consider the following:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks Let investors buy it now…and Amazon wasn't one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Think when Nvidia I prepared this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $671,728!*
Stock advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. the Stock advisor The service has More than four times The return of the S&P 500 since 2002*.
*Stock Advisor returns as of May 28, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Drury He has jobs at Amazon. The Motley Fool has positions on and recommends Amazon. The Motley Fool has Disclosure policy.
Amazon shares hit a new all-time high. Here's why I keep buying. Originally published by The Motley Fool