It’s difficult to have had a conversation about consumer growth stocks in 2017 without having heard mentioned the success of Amazon. The company’s growth was still not stifled in 2018, amidst turbulent February markets, the stock continued to maintain a staggering growth of 30% within the first two months of the year. The company is able to maintain a great stream of revenue while exploring alternative income pipelines, pushing future technology, and expanding its scope of M&A activities.
Amazon (NASDAQ: AMZN) has been incredibly focused on commercializing the homes of their clients. The company had previously acquired Blink, a remote door opening system aimed at allowing deliveries to be made inside the clients’ homes. This latest deal is for a similar video doorbell and security company, Ring. Amazon being able to come in through the front door without knocking might raise privacy issues with some people, but for the company this makes a lot of sense. Partnering with Alexa AI technology and making consumer homes “smarter” not only make it easier to order and deliver packages, but it also makes it easier for Amazon to know what you need before you even think of ordering it. Amazon’s cashier-less convenience store already has the technology needed to fully monitor and record customer behavior, and even WholeFoods is optimized for Amazon Prime customers.
It’s not difficult to imagine Jeff Bezos dreaming of a world where a person leaves their home with no keys, an empty fridge, and forgets to take out the trash, but comes home to delivered and sorted groceries, clean kitchen, and a witty greeting from Alexa.
Insofar as the stock price is concerned, currently trading at $ 1512, analysts and brokerages still believe that the growth potential is there. Last week Credit Suisse reiterated it’s outperform rating for $AMZN citing a price target of $1750. The company currently has a debt-to-equity ratio of 0.89, and a P/E ratio of $327.51, and has outperformed Thomson Reuters’ consensus EPS estimate of $1.85 by $0.31. Amazon’s high stock price also manages to dissuade irrational individual investors, and attracts a much more mature investor base with no future stock splits in sight.
While some might claim that the stock is overvalued, it’s important to note that this a valuation based not only on firm foundation theory, but largely on future industry and company prospectus. That’s not to say that “the stock will go up because it has before,” but rather the revenue and company cap is growing exponentially with the market cap in what is currently still an infant industry. Online retailing, and especially cloud-based business services, has yet to reach a fraction of its real potential. Amazon is doing everything they can to facilitate the much-needed infrastructure necessary to remain on top. On the other side of the world, JD.com ($JD), and Baidu ($BIDU), struggle to maintain growth by having not established services supportive of their business models early on. For investors that can’t handle Amazon’s current price, $BABA Alibaba offers an eastern value play that also has exceptional growth potential.
Regardless of which way the Street swings Amazon’s prices – 2018 will be a very special year for the company. If it is able to maintain earnings growth through Whole Foods venture or establish additional revenue streams Amazon may become the growth stock play of the year.