Is Amazon the best stock to buy for UK investors?

Should UK-based be investors buy shares in Amazon for their portfolios, and what is the best way to go about investing in the US-based e-commerce giant?

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If you had bought Amazon (NASDAQ: AMZN) stock on the first day of the new millennium you would have been up 2,200% as 2020 rolled around. Delaying a purchase of Amazon shares until 2010 would still have netted a 1,276% return at the start of 2020. Waiting until the start of this year to buy Amazon shares has still returned 67% as of right now with the share price sitting around $3,140.

UK investors might be wondering if they have now, finally, missed the chance to get in on the Amazon success story. But have they?

From A to Z

Buying Amazon stock gets an investor a slice of ownership in, Inc. The company started life as an online bookshop. It has grown beyond books to become an e-commerce giant, selling everything from A to Z online. Other businesses use Amazon’s online marketplace to sell, and Amazon collects a 15% commission on average.

With the purchase of Whole Foods, a US-based chain of food stores, in 2017 Amazon branched out into brick and mortar retailing. The purchase also provided the infrastructure to get a click and collect online grocery business underway. Amazon also collects subscriptions for premium membership of its main site, and various others like Audible. Then there is Amazon Web Services (AWS), the company’s burgeoning cloud computing division, and finally, Amazon has a healthy trade in advertising services.

Are Amazon shares worth buying?

Pretty much every analyst out there thinks they are: 98% of recommendations are to buy. At least one of them thinks Amazon’s share could hit $3,800 over 12 months. There is at least one dissenting voice, however, that believes shares in Amazon could fall 41.4% over the next year to $1,840.

I don’t agree with either of those positions. But I do think that only in the most bullish of scenarios is Amazon stock worth buying now for over $3,100. The bull case assumes that over the next 10 years, Amazon gobbles up over 40% of the cloud computing market and over 30% of the e-commerce market. That could happen, and the purchase of Amazon stock today could pay off in the future. But I would prefer a margin of safety, and so would be more willing to buy at closer to $2,800.

Should UK investors buy Amazon stock?

Buying Amazon shares just after its IPO in 1997 at $18 would have returned 17,344% today. When you hear things like that, it is tempting to rush into a stock now for fear of missing out again. I and at least another analyst think Amazon stock is a little overvalued at present. Many will disagree with this position, but I am looking for the price to drop before investing.

If you are a UK investor decided to buy Amazon, then there are other things to consider. One share will cost you a little under £2,500, which is 12.5% of the annual ISA allowance. Other accounts might offer fractional share ownership, but not the benefit of tax-free investing available with an ISA.

Buying shares in Scottish Mortage Investment Trust, a FTSE 100 stock, will get you exposure to Amazon and other tech companies, and shares cost under £10, which is much more manageable. There are of course a number of UK-listed companies that have racked up comparable returns to Amazon over the last 10 years and could be set to do it again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James J. McCombie owns shares of Scottish Mortgage Inv Trust. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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