Both Amazon NASDAQ:AMZN and Meta Platforms NASDAQ:META saw significant increases in their stock prices following their earnings reports last Thursday. Many investors will be wondering whether it is too late to jump on the Amazon bandwagon. Should you be spending more of your valuable time looking for the next Amazon?
The Amazon stock price has been exhibiting some excellent technicals recently: the stock is up 14% on the month and 21% on the last six months. Compare that with Apple NASDAQ:AAPL, up a mere 5% or so in six months with significantly more volatility than Amazon stock. The market seems more convinced about the fortunes of Amazon than Apple.
Record revenues were projected from Amazon in Q4, driven by solid advertising sales: “The greatest contributor to the topline will remain e-commerce, with the quarter’s results boosted by what’s expected to be a strong holiday sales period, especially in the US,” said Kyle Rodda, a market analyst with Capital.com.
Is Amazon dragging its feet in the AI stakes?
Rodda says the markets have been homing in on the performance and guidance of Amazon Web Services. The segment remains Amazon’s major growth driver and arguably remains the leader in its market. “However, there’s a growing perception that Amazon is lagging behind its peers on the roll-out of artificial intelligence, which could hamper growth and dull its competitive advantage,” said Rodda.
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Amazon surprised the market in terms of its revenue expectations. The earnings per share growth here shot the lights out. We are looking now at 92 consecutive quarters where the Amazon income line has increased compared to the previous year’s corresponding quarter. This demonstrates Amazon’s stability and its ability to grow in the future.
Notably Amazon’s EBITDA margin rose sharply to 15.7% which should help to support the stock in the future. Free cash flow has also increased.
Amazon stacks up well against close competitors like Alibaba and other companies operating in the same space. It is hard to find a stock of this size and quality outside China, although JD.com NASDAQ:JD might be worth a look.
Amazon displayed considerable expansion in the last quarter in terms of its total assets, although we note the increase in liabilities on its balance sheet. It maintains a debt to equity ratio which is, however, reassuringly below the industry average. It is carrying less leverage than many of its peers.
Liquidity also remains stable, with a current ratio of 1.05. It has a quick ratio of 0.84 which means its CFO might want to pay attention to the immediate financial commitments around its liquid assets, but I don’t think that will be much for CFO Brian Olsavsky to worry about.
What’s not to like?
Amazon looks like the sort of US large cap stock everyone should own a piece of. It is hard to fault its latest income statement. It comes across like that smart kid in the front row of the class with all As on its report card. Total revenue growth topped analysts’ expectations, and it delivered an improved gross profit margin as well.
Amazon reminds me of the Kansas City Chiefs at the start of the NFL season: very hard to bet against.
