2 Reasons to Like AMZN and 1 to Stay Skeptical

While Amazon has slipped 6.8% to $172.50 per share over the past six months, it’s still beating the S&P 500 by 6.9 percentage points.

Following the drawdown, is this a buying opportunity for AMZN? Find out in our full research report, it’s free.

Why Does AMZN Stock Spark Debate?

Founded by Jeff Bezos after quitting his stock-picking job at D.E. Shaw, Amazon (NASDAQ:AMZN) is the world’s largest online retailer and provider of cloud computing services.

Two Positive Attributes:

1. Skyrocketing Revenue Shows Strong Momentum

Amazon proves that huge, scaled companies can still grow quickly. The company’s revenue base of $280.5 billion five years ago has more than doubled to $638 billion in the last year, translating into an incredible 17.9% annualized growth rate.

Amazon’s growth over the same period was also higher than its big tech peers, Alphabet (16.7%), Microsoft (14.3%), and Apple (8.1%).

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it shows whether a company’s growth is profitable. It also explains how taxes and interest expenses affect the bottom line.

Amazon’s EPS grew at an astounding 36.9% compounded annual growth rate over the last five years, higher than its 17.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Amazon has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.3%, lousy for a consumer internet business.

Final Judgment

Amazon has huge potential even though it has some open questions. With the recent decline, the stock trades at 27.4× forward price-to-earnings (or $172.50 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

Stocks We Like Even More Than Amazon

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.