Is Amazon stock a no-brainer buy?

Sometimes the best stock buys are hiding in plain sight. microsoft For example, the company has seen its stock price rise 1,000% over the past decade, even though it was already an established software leader in 2014. It reached today’s staggering market capitalization of $3 trillion by relying on competitive advantages such as economies of scale and valuable brands. – It is likely to create many millionaire shareholders in the process.

Amazon‘S (AMZN 2.71%) Business can follow a similar path. The company has a long runway for growth in its core operating segments, such as e-commerce and cloud services. Profit margins are also expected to increase significantly over the next decade. Let’s take a look at how these factors can make stocks a great buying opportunity today.

Various sales profits

Owning Amazon gives you exposure to two large global growth niches: e-commerce and cloud enterprise services. The retail sector is the less exciting of the two, but is performing well. Recently, we have accelerated our growth and set a new record for year-end and holiday sales.

As Amazon continues to improve this established platform, it has room to continue to increase sales and profits as Prime membership fees increase. Management said on a recent conference call with analysts that it reduced average delivery times in the fourth quarter while cutting costs. “What excites us most is our continued invention and improvement of the customer experience across our business,” CEO Andy Jassy said in early February.

Improvements have become more evident in the cloud services segment, which is currently expanding at a healthy double-digit rate. Growth has accelerated over the past few months, and management believes this uptick will continue through 2024.

This is because companies are not delaying cloud migration as early as 2023. Accordingly, Wall Street experts expect Amazon’s massive business to grow at a double-digit rate until at least 2025.

Aiming for higher profits

However, if your financial situation is not bright, you may not be able to purchase stocks easily. And there is even better news on this point. Amazon’s cash flow trends have improved sharply over the past year, rising from $11 billion outflows to $32 billion inflows in 2022.

AMZN free cash flow data from YCharts.

More of these profits are flowing directly into higher profits. Amazon’s operating profit soared to $13 billion last quarter, compared to $3 billion a year ago. The surge helped the company fully recover from its post-pandemic revenue hangover. Operating profit was approximately 6% of sales, close to an all-time high.

Nonetheless, there are far more profitable options in the cloud services space. Microsoft’s Azure platform competes with Amazon’s web services division. Currently, the company converts more than 40% of its sales into profit. Amazon’s 6% profit margin is closer to pure-play retailers such as: target Tech giants like Microsoft apologize.

The bullish thesis, then, relies heavily on the company hitting new highs in this key financial metric. Even small moves into the low double digits can lead to huge profit gains.

Amazon’s ample cash flow and the growing importance of its cloud services segment suggest that this move could happen after 2024. The services segment currently accounts for 55% of the overall business, and that proportion is likely to increase in the coming years.

Considering these very positive factors, the stock doesn’t seem too expensive. You can own Amazon for about 3x your earnings. This compares to Microsoft’s price-to-sales (P/S) ratio of 13 and Apple’s P/S ratio of 8.

Yes, there’s no guarantee that Amazon’s stock value will rise to premium levels for the tech giant. But investors have some good reasons to believe this will generate superior shareholder returns over the long term.