Shares of Amazon.com Inc. (AMZN, Financial) have been up and down over the last year, with shares dipping to $1,343 on Dec. 24, rising to $1,656 on Jan. 8 and tumbling back down to $1,620 on March 8. Although the stock has encountered some volatility, investors remain relatively confident in the brand.
Is now a good time to buy Amazon? If you’re an investor with some risk tolerance, yes.
Earnings and cash flow growth
When looking at any stock, earnings growth is an important factor to consider. Double-digit earnings growth is typically an indicator of strong prospects.
Amazon’s earnings per share in 2018 were up 227.48%, but are projected to grow 33.8% this year. The figure beats the industry average, which is expected growth of 10.5%.
Cash flow growth is another important consideration when choosing a stock. When companies have higher-than-average cash flow growth, they’re able to invest in new projects without taking on more debt.
Year over year, Amazon’s cash flow growth is at 85.2%. Historically, the company’s cash flow growth rate has been around 48% over the last five years. The industry average was about 16% during this period.
Future growth
Amazon isn’t afraid to venture into new territory. The company entered the grocery space with its purchase of Whole Foods in 2017, made its foray into fashion in 2018 and in 2019, announced it will move into broadband.
With Project Kuiper, which was introduced in early April, Amazon plans to launch low-orbit satellites to provide worldwide access to the internet. The company is reportedly aggressive in its pursuit of launching 3,236 small satellites into space, and has already submitted filings with the International Telecommunication Union regarding the project. It has also hired a few former SpaceX employees.
In the future, consumers may just see Amazon’s project on broadband comparison websites. Project Kuiper could prove to be strong competition to Google’s Project Loon, which also aims to provide worldwide internet coverage.
Amazon has also already started launching its cashierless Amazon Go stores, which could prove to be profitable for the company. Shoppers spend about 50% more, on average, at Amazon Go compared to typical convenience stores. Analysts at RBC Capital Markets estimate Amazon Go stores receive about 550 customers per day, which translates to an estimated $1.5 million in revenue per year for each store.
With higher-than-average earnings and cash flow growth and promising projects lined up, Amazon may be a good long-term investment for those with some risk tolerance.
Disclosure: The author has no stakes in the listed equities.
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