5 reasons you should buy Amazon stock like there’s no tomorrow

After researching many stocks on the market today, I have concluded the following. Amazon (AMZN 0.23%) It’s one of the best purchases you can make. Despite a strong 11% rise in 2024, we still think there is room for upside. I’ve pinpointed five factors that make Amazon a strong buy now, despite its stellar performance in 2024.

1. Amazon is no longer just a commerce company.

Amazon is well known for its commerce business, but has quietly transitioned into a services business. These divisions include third-party merchant services, advertising services, subscription services, and its cloud computing business, Amazon Web Services (AWS). Combined, these segments generated $92.9 billion in revenue compared to $75.7 billion in commerce revenue.

These services are essential to many businesses, so increasing their sustainability is important. Amazon also looks at similar companies, including: Although it doesn’t break down the profitability of each segment. Shopify For third party sellers or alphabet When it comes to advertising, it’s clear that the margins for the service are much better.

2. Amazon’s margins have improved dramatically.

This gives me the reason for my next purchase. Amazon’s gross margins have soared over the past decade, thanks to the growth of its services segment.

AMZN Gross Profit Margin (Quarterly) data from YCharts.

Higher gross margins mean Amazon is likely to have better profit margins, which also improved in recent quarters after plummeting thanks to heavy spending to meet pandemic-era demand. This will be a key indicator for investors to watch as Amazon attempts to transform itself into a profit-maximizing company.

AMZN profit margin (quarterly) data from YCharts.

3. AWS is changing

The main profit contributor is AWS, its cloud computing business. In the fourth quarter, Amazon’s North American commerce business made an operating profit of $6.5 billion, while its international business suffered a loss of $419 million. However, AWS filled the void, posting $7.2 billion in operating profit, despite much lower revenue numbers (AWS reported $24.2 billion in revenue in the fourth quarter and $106 billion in North American commerce revenue).

AWS’s profitability declined slightly in the fourth quarter of 2022, with an operating profit margin of 24%. However, it recovered immediately in 2023 and recorded an operating profit of 30% in the fourth quarter.

One of the items receiving the most attention is the growth of AWS. It increased 13% in the fourth quarter, while rival Google Cloud microsoft All of Azure’s sales grew in the low 20% range. There are a number of reasons for this, but Amazon executives believe that new workloads are starting to come online, which will drive growth for AWS throughout 2024. This is key because AWS is essential to Amazon’s profitability.

4. Reasonable valuation

Amazon has had a good year, but its stock price remains reasonable. Using traditional valuation metrics like price-to-earnings (P/E) ratio is not ideal for Amazon. Because Amazon is not fully optimized for profit. Instead, we will use the price-to-sales ratio to evaluate the business. Amazon’s valuation, which has tripled sales, is roughly the same as it was in 2018 and still below what it was during the pandemic sell-off.

AMZN PS ratio data from YCharts.

5. Improved cash flow

The last is probably the most important: improving cash flow. Amazon’s cash flow has increased dramatically due to AWS’s turnaround, growth in its services division, and improved margins.

Amazon’s fourth-quarter cash flow was an all-time high, helping its total cash flow over the past 12 months reach a new record.

AMZN Free Cash Flow (Quarterly) data from YCharts.

With that cash, Amazon can pay down debt, buy back stock, or fund dividends. These actions benefit shareholders and are the main reason to invest in Amazon stock.

Despite Amaozn’s strength from early 2023 to present 2024, it is still a good buy for now.