Stock market

Should I buy Amazon shares at 52-week highs?

Amazon (NASDAQ: AMZN ) shares have been on fire lately. In fact, they are up 120% since early 2023 and now sit below the 52-week high of $187.

To the detriment of my wealth, I have never owned Amazon stock despite its obvious merits.

So, is it time for me to correct this oversight? Let’s discuss.

Transfer

Day 2 is static. After that is irrelevant. An agonizing, painful decline followed. After death. And that’s why it’s always the first day. [at Amazon].

Jeff Bezos, 2016 letter to Amazon shareholders

CEO Andy Jesse takes over from Jeff Bezos in 2021. Nearly three years later, some critics say Amazon is now more focused on near-term performance than radical innovation for the future.

There’s some truth to that, I’d say, because it’s been years since we’ve seen a new Amazon business launch and scale as successfully as Amazon Web Services (AWS) or Prime.

Voice assistant Alexa didn’t turn out to be the game changer that many expected, myself included. I originally saw it as a powerful AI concierge with unlimited use cases and potential to generate profit. A chatbot on steroids, basically, that will challenge Google’s search empire.

However, most people I know still primarily use Alexa to play songs on their Echo devices!

In addition, AWS is now growing more slowly than competitors Google Cloud and Microsoft Azure

So, it’s not a slam dunk that Amazon will remain a dominant force indefinitely.

India’s opportunity

Having said all that, it’s hard not to see Amazon ever getting bigger. Take India, for example, where it has a large operation.

According to Statista, the Indian e-commerce market has grown from $39bn in 2017 to $74bn by 2022.

Yet it accounts for less than 10% of India’s total retail market. And e-commerce is poised to become a $350bn market by 2030!

So, assuming there is no regulatory interference, Amazon is very likely to grow its total 100m+ user base there for many years, possibly decades.

Value

Amazon stock often looks expensive based on the price-to-earnings (P/E) metric. Right now, the P/E is 63.

However, many growth investors prefer to look at Amazon’s price-to-operating cash flow (P/OCF) ratio.

As may be obvious, it considers the cash generated from the operations of the underlying business. Currently, it’s 23 versus a 13-year median of 27.44.

Based on this, the stock is not overvalued. And analysts see the company’s operating cash flow rising 49 percent to $127 billion this year. Then $166 billion in 2026.

Oh, and based on consensus estimates, annual revenues could exceed $1trn by 2030!

It may not be Day 1 on Amazon anymore, but we’re certainly nowhere near Day 2.

Diversity

One issue I’ve been wrestling with lately is the duplication of tech stocks in my portfolio.

I have a big holding. Scottish Mortgage Investment Trustwhich itself holds large positions in Amazon, Nvidia, TeslaAnd Meta.

Meanwhile, I’m investing Pershing Squarewhich holds the alphabet. I also have Alphabet shares.

So I’m cautious about increasing my exposure to mega-cap tech stocks by investing in Amazon as well.

Of course, this only pertains to my own portfolio. If I didn’t have this problem, I would consider investing in Amazon shares, even as they flirt with new all-time highs.


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