After the results of the second quarter of Amazon (NASDAQ: AMZN) late last month which were much better than analysts expected, is now a good time to buy the growth stock? With stocks rising an incredible 73% over the past 12 months, this is probably a question on the minds of many investors, as some people may feel like they are missing out on their opportunity to buy in this exciting growth story.
However, a closer look at Amazon’s booming business shows that stocks are still attractive today.
Image Source: Amazon.com.
An enormous second quarter
Investors had high expectations for Amazon entering its second quarter. After all, e-commerce was a clear beneficiary of consumer protection at home because of COVID-19. However, Amazon still managed to blow away higher expectations.
In Q2, Amazon’s revenue increased 40% year-over-year to $ 88.9 billion. Net income doubled, hitting $ 5.2 billion and translating to earnings per share of $ 10.30. Analysts expected average earnings of $ 81.5 billion and earnings per share of $ 1.46.
This strong bottom-line performance was particularly impressive, given the company spent $ 4 billion on incremental costs related to COVID-19 in the quarter, including $ 500 million in ‘special tank’ bonuses to its frontline staff and delivery partners. In addition, management said it has created more than 175,000 jobs since March and is currently putting 125,000 of these new employees in full-time positions.
This momentum marks how critical Amazon has become for the way people shop today. Even more, COVID-19 accelerated the adoption of e-commerce by both third-party buyers and consumers, and provided a basis for continued strong growth in e-commerce for years to come.
Appreciate Amazon file
Despite the outstanding performance that Amazon demonstrated during a pandemic, some investors may still question the demand for the growth rating. After all, the company is currently trading at 120 times revenue.
But investors need to note the impressive business performance in Amazon’s business model. The company was able to double its net income year over year in Q2, even though it spent $ 4 billion on COVID-19 related items. While Amazon’s revenue is unlikely to increase rapidly after customers return to their normal lives, the strong showing of this quarter is an example of the operating charge that Amazon may demonstrate in the coming years.
There is still a lot of room for Amazon sales to grow. After all, going into 2020, the penetration of e-commerce in the US was just 15%. Of course, the adoption of e-commerce around the world accelerates during Q2 – a trend that undoubtedly has some permanent ramifications and will eventually force many retailers to transform digitally much faster than originally expected. If Amazon’s sales grow in the coming years and operational taxation leads to large profit growth, quarterly revenue is likely to not only compete with Q2 2020, but will even be significantly higher
In short, although on the surface Amazon’s price may seem high relative to earnings, the company’s strong business performance, promising e-commerce prospects, and recent sales momentum may make the current valuation of the stock worth a premium. to pay for.
Of course, investors should expect significant volatility in Amazon’s stock price in the weeks and quarters ahead. Given the enormous movement of the stock higher in 2020, it is highly unlikely that stocks can prevent sharp declines at times. But for investors willing to hold on for five years or longer, the current price is likely to be a backlog a solid entry.
