Amazon Stock on Upward Trajectory, Making it Hard to Find Pessimism

on May 11, 2016
Updated: Oct 16, 2019
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After dazzling Wall Street with its most profitable quarter ever for the first three months of 2016, Amazon.com Inc. seems set on an upward path. Sales were up 28 percent in the first quarter, causing shares to jump more than 10% on the day the earnings were reported.

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For those considering whether they should invest in Amazon stock, which more than doubled in price in 2015, this high-growth and the company’s expansion into other economic sectors, including the shipping and finance industries, makes it a tempting asset.

“Amazon is a multi-trillion dollar monopoly hiding between us in plain sight,” high-profile Silicon Valley venture capitalist, now hedge-fund manager, Chamath Palihapitiya, said recently.   Although they may disagree on the exact projects, most investment banks also see Amazon’s revenue and share price increasing.

Valuation of Amazon Based on Multiples

The company has displayed massive growth, not just in its stock price, but also in its activities this past year.  It has expanded into more foreign markets.

Amazon has also registered as a transportation company, bought thousands of truck trailers and stakes in two airlines, as it seeks to consolidate delivery logistics under its control.  Analysts say these actions, which have caused jitters in the shares of delivery companies like FedEx, will help ensure the company’s long-term hold on its market.

 

Amazon is also plowing ahead with expanding its payments platform, partnering with other e-commerce platforms, and looking to acquire more companies in the financial technology sector.

There are those analysts, although they seem to fall into the minority, who are wary of the 22-year-old company.  They view its $310 billion valuation with skepticism, pointing out that until last year, profits were quite meager, and, at times, even non-existent, despite its market dominance.  

Such skeptics also highlight the fact that Amazon’s operating margins are actually lower than most major retailers.  Moreover, although it is the S&P 500’s seventh-largest company, it does not pay dividends, but rather re-invests much of its capital, a flashpoint for some. 

Palihapitiya counters all of this, including by arguing that the reinvestment of earnings is a sign of strength.  With this strategy, Amazon’s founder and CEO Bezos follows the model of Warren Buffett, Palihapitiya says, making it the brains and ideas of the CEO that investors rely on more than anything else.

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