Can you buy Amazon stock without hesitation?

Sometimes the best way to buy stocks is hidden in plain sight. microsoft For example, the company was already an established software leader in 2014, yet its stock price has increased 1,000% over the past decade. He relied on competitive advantages such as economies of scale and valuable brands to reach today’s massive $3 trillion market capitalization. –Probably creates many billionaire shareholders in the process.

Amazon‘s (AMZN 2.71%) Businesses could follow a similar path. The company has a long runway of growth ahead of it in core sales segments such as e-commerce and cloud services. Profit margins are also expected to rise significantly over the next 10 years. Let’s take a look at how these factors make today’s stock a great buying opportunity.

Diverse sales profit

Owning Amazon gives you exposure to two huge global growth areas: e-commerce and cloud enterprise services. The retail sector is the less exciting of the two, but it is performing well. Growth has accelerated recently, setting holiday season sales records.

As Amazon continues to improve upon this established platform, there is room for it to continue to grow 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 despite cutting costs. CEO Andy Jassy said in early February, “What is most gratifying to us is the continued invention and improvement of the customer experience across our business.”

The improvement has been more pronounced in the cloud services sector, which is currently growing at a healthy double-digit rate. Growth has accelerated in the past few months, and management believes this increase will continue through 2024.

That’s because companies aren’t delaying their move to the cloud as early as 2023. As a result, Wall Street experts expect Amazon’s massive business to grow at double-digit rates through at least 2025.

Aiming for higher profits

But you wouldn’t think twice about buying this stock without a positive financial outlook, and there’s more good news on this front. Amazon’s cash flow trends have improved sharply over the past year, increasing from $11 billion in outflows to $32 billion inflows in 2022.

AMZN Free Cash Flow Data by YCharts.

Many of those profits flow directly into higher profits. Amazon’s operating profit soared to $13 billion in the quarter, up from $3 billion a year earlier. This surge allowed the company to fully recover from the post-pandemic revenue fallout. Operating profit has returned to near its all-time high of approximately 6% of sales.

Still, there are far more profitable options in the field of cloud services. Microsoft’s Azure platform competes with Amazon’s Web Services division. The company currently converts more than 40% of its sales into profits. Amazon’s 6% profit margin is similar to pure retailers such as: the goal Not against big tech companies like Microsoft and Microsoft. apple.

Therefore, the bullish thesis largely depends on whether the company establishes new highs in this core financial metric. Even modest increases in the low double digits can lead to huge profit increases.

Amazon’s strong cash flow and the growing importance of its cloud services division suggest this move could occur after 2024. This service sector currently accounts for 55% of the total business, and that proportion is likely to rise in the coming years.

Given these very positive factors, the stock doesn’t seem overvalued. You can own Amazon for about 3x the revenue. This is a significant amount compared to Microsoft’s price-to-sales (P/S) ratio of 13 and Apple’s P/S ratio of 8.

Yes, there is no guarantee that Amazon’s stock valuation will rise towards a premium for these tech giants. But investors have some reason to believe it’s likely to deliver superior shareholder returns over the long term.