[Editor’s note: “3 Reasons Why You Should Buy Amazon Stock Now” was previously published in March 2019. It has since been updated to include the most relevant information available.]
If you’re looking for a long-term bet in the technology sector, few names inspire as much confidence as Amazon (NASDAQ:AMZN). Unfortunately, the Amazon stock price is currently telling a different narrative. Although shares are up 19% year-to-date, the e-commerce giant has recently encountered some volatility. How then should investors react?
Some negative macro factors, including the trade war and the Justice Department’s probe of large tech firms, may make risk-averse investors want to stay far away from Amazon stock. However, those with some tolerance for risk should consider these three reasons to buy AMZN right now:
Take Advantage of the Fundamental Gap in Amazon Stock
When you’re a small company, particularly an upstart tech firm, the law of small numbers works in your favor. If you’re only making $1 million in annual revenue, another million would represent 100% sales growth. That’s one of the reasons why penny stocks are so compelling: hit the right one and you’ll witness bonkers enthusiasm.
But what does $1 million mean to a company like Amazon? Today, such a lowly figure is a rounding error, if that. Hence, the bigger your organization becomes, the more likely that the law of large numbers works against you.
Yet some companies like Facebook (NASDAQ:FB) go against the grain. After reaching the one-billion active user benchmark, it quickly got to two-billion. Despite its size and age, Facebook’s growth metrics are simply more convincing than comparative upstarts Twitter (NYSE:TWTR) and Snap (NYSE:SNAP).
But if you’re not into social media, don’t worry: AMZN stock also moves in counter-intuitive fashion.
Having dominated ecommerce for several years, you’d expect revenue growth to conspicuously peak. Instead, sales growth is noticeably increasing, which easily bolsters the long-term case for Amazon stock.
For example, quarterly revenue growth in 2018 averaged nearly 33% against the year-ago levels. In 2017, this metric was just under 30%. And in 2016, the metric was under 28%. Never resting on its laurels, management continues to seek out fresh opportunities, and it shows in the financials.
However, the Amazon stock price is still below last year’s highs, and it’s gone down meaningfully over the last month. Based on the financial evidence, this is a clear mismatch between the fundamentals and the technicals.
While I’m not sure when AMZN stock will rise again, it will almost surely do so.
Millennials Really Love Amazon
If you need any reason to ignore the noise and buy Amazon stock, it’s that millennials love the ecommerce giant.
Now, we all throw around terms like “love” to the point where it has no meaning. But with AMZN, the term truly resonates. In 2017, a marketing survey revealed that 79% of millennials purchased something from Amazon.com in the prior month.
As every year passes, new marketing surveys reveal the same trend: young shoppers can’t get enough of the online marketplace. And it’s not just the fact that they’re constantly buying stuff through the website; more critically, they’ve changed the retail landscape by essentially condemning shopping malls to irrelevancy.
Now, a more recent survey claims 44% of millennials would give up “intimate relations” rather than abstain from Amazon. I think that’s a better success rate than actor-turned-evangelist Kirk Cameron ever achieved with his purity campaigns!
All joking aside, this is a clear signal to buy AMZN stock for the long haul. Remember, millennials and the coming-of-age Generation Z will dictate terms over the next few decades.
Different Circumstances Benefit AMZN Stock
I completely understand why many investors are freaking out over global economic data and the trade war. If consumer sentiment worldwide drops, it will take down the Amazon stock price. Also, several factors, such as soaring housing prices, make this year look eerily like 2007.
And please don’t get me wrong: I’m not suggesting that you should be reckless. Indeed, legitimate concerns exist, and you should have a plan in place should things go awry.
However, let’s also note that 2019 is also far different from 2007. One of the biggest changes is that banks no longer lend to subprime borrowers. Therefore, it’s unlikely that the housing market will collapse like it did more than a decade ago.
So long as we don’t have an apocalyptic scenario, consumers will continue to shop at Amazon. Again, this consistent demand makes AMZN stock a relatively safe long-term bet.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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