In the last decade, the biggest change in the U.S. economy has been the rapid adoption of e-commerce. Once considered a mere curiosity, digital is quickly becoming the preferred shopping method for many Americans. Partially fueled by the pandemic, retailers that invested in the digital channel are reporting tremendous growth, and holdouts are being forced to move into the space or risk becoming irrelevant.
Of course, you can’t mention e-commerce without including Amazon (NASDAQ: AMZN). The company essentially wrote the book on e-commerce, and early shareholders have been among the biggest beneficiaries. Obviously, the stock has made investors a lot of money over the past decade, creating many millionaires in the process. But just how much would you have had to invest a decade ago to be a millionaire today?
At Tuesday’s close, a share of Amazon cost a little over $3,200, so $1 million worth is 312 shares. The share price for Amazon was $180 a decade ago. So if you bought 312 shares for a total investment of $56,160 back then and held on, your position today would have a total value of a million dollars.
Amazon’s run isn’t over yet
The biggest argument against Amazon’s stock today centers on two separate – yet interrelated – issues.
The lazier of the two arguments is that, due to its immense $1.6 trillion market cap, the stock is too big to continue rewarding long-term investors. This argument that “the easy money has already been made” reached a fever pitch when the stock first hit the $1 trillion mark, and the stock has grown 60% higher in less than two and a half years. America is still in the early innings of the shift to e-commerce: In the third quarter, the U.S. Census Bureau found that e-commerce was only 14.3% of total retail sales. Although the pandemic has increased adoption in the short run, the trends underpinning the growth of e-commerce are not reversing anytime soon. As the largest digital vendor in the United States, Amazon is in the driver’s seat to benefit from this continued shift.
The second argument is stronger, as it centers on valuation. But even that line of attack falls apart under further inspection because Amazon has been growing its bottom line just as fast as its stock price in recent years. Through the first nine months of 2020, Amazon has increased sales 35% over the prior year and earnings per share nearly 70%. Amazon’s PEG ratio (which compares future earnings estimates to today’s valuation) is currently 1.25, a modest premium that’s more reminiscent of a value stock than a high-growth company.
It’s been a great decade for Amazon investors – and the long-term drivers are in place for future gains.