Take a look at almost any earnings report for a brick-and-mortar retailer, and you’re sure to find Amazon.com, Inc. (NASDAQ:AMZN). And while most retailing shares have dropped in the last year, AMZN stock is up 25%.
Perhaps the e-commerce giant isn’t named outright, but whenever retailers complain about the online threat, they’re talking about AMZN. Reading between the lines isn’t too difficult, considering that the havoc Amazon has wreaked.
Technology firms are nowadays focused on disruption, and no organization could be more disruptive. This is the reason why, as our Dana Blankenhorn is fond of saying: “InvestorPlace loves AMZN stock.”
Despite shares being down 2.3% in the last month, our writers “have generally become more positive about it.” I’m guilty as charged. I can think of only a mere handful of companies where you can be perpetually long without fear or hesitation.
Domestically, no one can hold a candle to AMZN. Big-box retailer Wal-Mart Stores Inc (NYSE:WMT) seeks to stymie its dominance, but this is still a work in progress. Rival Target Corporation (NYSE:TGT) has also waded into the online battle with its ship-from-store business, but to little success. Target shares are down nearly 21% year-to-date, whereas Amazon stock is up 29%.
Even brand-name department stores are having a bear of a time confronting the e-commerce company. Publicly traded firms like Nordstrom, Inc. (NYSE:JWN) and especially Macy’s Inc (NYSE:M) have revamped their websites for online sales. The problem is that the individual brands that they carry are also streamlining their own digital channels. The end result is that the retail sector overall is busy killing each other for scraps. In the meantime, AMZN only gets stronger.
But with recent weakness in Amazon stock (shares are at the same price range they were in early May), have the good times finally run out?
AMZN Continues to Beat Companies Up
At current levels, I can sympathize with the bearish outlook. After hitting an all-time, intra-day high of $1,083.31 on July 27, Amazon stock fell nearly 13%. In fact, AMZN looks like its generally trending southbound since early to mid-June.
Although weakening trading should never be ignored, I firmly believe that AMZN stock is offering a discounted opportunity for late-comers. Psychologically, yes, the price tag isn’t necessarily encouraging. But fundamentally, Amazon is perhaps the most convincing among the so-called “FANG” stocks.
Typically, the only thing dominant organizations can do is to maintain their supremacy. The Amazon difference is that it seeks unrelated sectors to control. A prime example is the Whole Foods Market, Inc. (NASDAQ:WFM) takeover drama. As noted by InvestorPlace contributor Bret Kenwell, as soon as AMZN officially took over the reins at Whole Foods, it began slashing prices.
Unable to do anything about the intrusion, grocery mainstays like Kroger Co (NYSE:KR) and Sprouts Farmers Market Inc (NASDAQ:SFM) have been taking a beating. If current trends are anything to go by, grocers should brace for more pain.
Here’s a remarkable fact that often goes unnoticed. According to statistics provider data Statista Inc., since 2004, the e-retailer’s net sales growth rate averages a remarkable 28%. Never in that time period has the growth rate dipped below 19%, which bodes well for Amazon stock.
Click to Enlarge Source: Statista, 2017
The usual course of action for an industry behemoth is for top-line expansion to decline in scope. But since 2014, sales growth has expanded to last year’s robust 27%. With more markets to impact and other businesses to create, AMZN is a freak of nature.
AMZN Stock Stands Alone
Although I’ve been wrong about the meteoric rise of Alibaba Group Holding Ltd (NASDAQ:BABA), I’m not worried about it, or other competitors, for that matter. One of the reasons why AMZN stock has done so well, so consistently is that management focuses on quality, not necessarily quantity.
Retail experts consider the China and India markets as gold mines. However, we need to consider that a good chunk of Amazon’s retail base comes from consumers who make more than $100,000 a year. In other words, merely the existence of people doesn’t drive sales. In order to be the best, you have to harpoon some whales.
AMZN does that readily. Even their acquisition of Whole Foods — which caters to a more affluent clientele — reflects their flight-to-quality ethos. Ultimately, in an unsteady retail environment, you need the quality to survive and thrive.
I completely understand the gut reaction that AMZN stock is too pricey. But to be fair, Amazon is an apex predator. That kind of stability (and from the competitors’ perspective, intimidation) doesn’t come cheap.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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