Amazon (AMZN) Stock Analysis & Forecast | Is It A Buy?

Updated: 14th Apr 2021
Written by Sean Graytok
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If you’re deciding whether or not to invest in this FAAMG stock, you’re in the right place. Here’s what you need to consider before buying Amazon stock.

Amazon Investment Potential

Amazon has a market cap of $1.5 trillion but continues to grow and innovate like an agile startup.

Amazon’s customer-obsessed culture is the foundation of its success – it stops at nothing to improve the customer’s experience.

Amazon refuses to rest on its laurels, going from two-day delivery to one-day, to same-day, to 2-hour, and soon too before you even know you want whatever it is you’re ordering. It’s always day one at Amazon.

This attitude is stitched into the fabric of the company. It is one of the many reasons why we’re excited about the investment potential in Amazon for years to come.

Learn More: Is Palantir (PLTR) Stock a Buy?

Amazon Competitors

You should evaluate Amazon’s competitors before buying its stock. This process forces you to consider the company’s strength and possible vulnerabilities as it competes for market share.

Although it is a logistics company at its core, Amazon competes for market share in several industries, so this step will be more complicated than your average company.

According to Amazon’s quarterly and financial statements, Amazon breaks its revenue streams into five major categories.

Let’s examine each of these categories and identify the company’s main competitors:

#1. Online stores

  • Shopify (SHOP)
  • Walmart (WMT)
  • (OSTK)
  • Alibaba (BABA)

#2. Physical Stores

  • Walmart (WMT)
  • Target (TGT)
  • Costco (COST)

#3. Third-party seller services

  • eBay (EBAY)
  • Facebook (FB)
  • Etsy (ETSY)

#4. Subscription services

  • Netflix (NFLX)
  • Apple (APPL)
  • Alphabet (GOOGL, GOOG)

#5. Amazon Web Services (AWS)

  • Microsoft (MSFT)
  • Alphabet (GOOG, GOOGL)
  • Alibaba (BABA)
  • Oracle (ORCL)

Related: Is Apple (AAPL) Stock a Buy?

Amazon Stock Moat

A company’s “moat” usually refers to its competitive advantage over other players in the space, which allows it to protect its market share and profitability.

If a company has a weak barrier against the competition, then other firms can swoop in and take a piece of the pie, possibly impacting a company’s stock.

We believe that Amazon’s innovation recipe is its moat, which is invaluable because it allows Amazon to compete in every sector.

This recipe is why Amazon can start out as a bookstore and evolve into a e-commerce, grocery, streaming, healthcare, and cloud computing giant. Speaking of loud cloud computing…

AWS is Amazon’s second moat – the web services arm of the empire rakes in enough profits to essentially subsidize the company’s other pursuits.

AWS enables Amazon to play the long game in streaming, for example, allowing Amazon Studios to operate at a loss for years.

Learn More: Best FinTech Stocks

Amazon Stock Analysis

Looking into a company’s financial statements is also worth your time if you’re deciding whether or not to invest.

Let’s look at the highlights of Amazon’s most recent earnings report:

  • AWS CEO Andy Jassy will replace Jeff Bezos as CEO of Amazon in the third quarter
  • Largest revenue quarter of all time in Q4 2020, generating $125.56 billion in sales
  • Net sales increased 38% to $386.1 billion year-over-year
  • Operating cash flow increased 72% to $66.1 billion year-over-year
  • Free cash flow increased 20% to $31 billion year-over-year
  • Amazon has 1.3 million employees across the globe with 175,000 new hires in Q4 2020
  • AWS revenue up 28% to $12.7 billion year-over-year
  • Sales fell 8% in Amazon’s physical store unit (which includes Whole Foods Market) in the fourth quarter
  • The cost of shipping goods to consumers increased by 67% to $21.5 billion year-over-year

As you can see, diving into Amazon’s earnings report provides valuable insights into the company’s health and trajectory. It’s safe to say it was a great quarter and year for Amazon.

Learn More: Is PayPal (PYPL) Stock a Buy?

Amazon Stock Allocation in Your Portfolio

Finding the right allocation of Amazon stock in your portfolio depends on various factors, such as your investing goals, time horizon and risk tolerance.

These will differ greatly from person to person, so it’s important to organize your investing mental models before pouring your money into a stock.

We recommend investors have long time horizons when buying a stock. While the market can be volatile in the short term, stocks (especially good ones) tend to go up over long enough time periods.

It’s very difficult to “beat the market” or outperform benchmark ETFs like the S&P 500, which provide diversified exposure to companies across all industries.

Although these risks are well documented, countless investors still seek higher returns in individual names like Amazon.

Over the last decade, these investors have been rewarded, and then some.

If you’re new to investing, it may take some time to find your optimal risk to reward ratio. In the meantime, we recommend writing down your investing goals and keeping those time horizons far into the future.

Related: Best Cybersecurity Stocks

How to Research Amazon Stock

The Motley Fool is the best place for all-things Amazon related. Their team of analysts and contributors cut through the noise in the stock market and provide you with actionable insights to help you make money investing in Amazon.

If you were reading their analysis on Amazon in the early 2000s, you’d be up more than 10,000% on the stock.

Don’t miss out on their best stock recommendations for 2021 – start reading the Motley Fool today.

See: Motley Fool Review or How to Research Stocks

How to Buy Amazon Stock

Ok, you’ve decided that Amazon belongs in your portfolio. Here’s what you need to do next if you want to buy Amazon Stock:

#1. Open an Account with a Broker

There are countless brokerage firms to choose from, but we recommend opening an account with Vanguard or Charles Schwab.

These are two of the most reputable brokers available and trusted by more than 60 million personal investors.

We recommend investing in a Roth IRA or Traditional IRA before allocating to a brokerage account because of their tax-advantaged characteristics.

Learn More: Best Online Stock Brokers

#2. Fund Your Account

Next, you need to fund your account by connecting your bank account to your Vanguard or Charles Schwab account. This process is very straightforward and secure.

It may take a few days to verify your banking information and the funds to hit your account, but these are necessary security measures.

#3. Buy Amazon Stock

You can search for Amazon stock by typing in its ticker symbol, “AMZN”, and then decide on the number of shares you wish to purchase.

Depending on the brokerage firm you invest with, you may even be able to buy fractional shares of the e-commerce giant – as little as $1 worth of stock. Robinhood is a popular choice for easy and flexible investing.

Related: How to Start Investing

Final Take: Amazon Stock

It’s not an accident that Amazon’s been one of the best-performing stocks of the last decade – the company’s culture of innovation continues to exceed Wall Street’s expectations quarter after quarter.

Past performance does not indicate future returns, but Amazon’s success doesn’t appear to be slowing down any time soon.

More Investing Resources:

Sean Graytok owns shares of Inc.

Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.