I think Amazon (NYSE: AMZN) shares have all the qualities I look for in a buy-and-hold investment.
For a start, the company’s size gives it a substantial competitive advantage. Profit margins at its retail business are razor-thin, but it can operate with these minuscule margins because of its size.
Then there’s the fact this is more than just a retail business. For much of the past decade, Amazon has been using its retail profits to subsidise the growth of its advertising and cloud computing divisions. These divisions are now the largest and most profitable part of the group.
With all of these businesses under one umbrella, the company can shift profits across the organisation to where the money’s needed. This is another substantial competitive advantage.
The company’s reputation with consumers is also an advantage. Amazon’s slick, one-click, one-day delivery service is virtually unrivalled. So too is its level of customer service and breadth of stock. Customers love the group for these reasons.
Amazon shares risks
This is why I believe that as long as the company continues to invest in its customer service, product offering and logistical network, it will maintain its market position.
Even if regulators force the group’s breakup, I think Amazon shares are an attractive buy-and-hold investment. The firm’s non-retail businesses are now big enough to stand on their own two feet.
If they were independent, they would both be some of the largest companies in the S&P 500. While a breakup would increase competition, as the new organisations may end up competing against each other, they would also have more flexibility.
Regulatory action is one risk the company faces. Another is competition. A third is higher costs. Amazon may have to pay its workers more money as competition in the e-commerce sector grows. This may put the group’s slim profit margins at risk.
Still, despite these challenges, I’m optimistic about the outlook for Amazon shares. That’s why I’d buy the stock with the view to holding it until 2030 and beyond.
Buy-and-hold investment
During this time, I’ll be keeping a close eye on the company’s profit margins and capital spending.
A slowdown in the latter could indicate that the business isn’t investing enough to keep up with its rivals. This may lead to a decline in profit margins.
Indeed, even though the company is a tech champion today, its position in the market shouldn’t be taken for granted. And if regulators do move against the enterprise, I will reevaluate my estimate of the stock’s worth.
Despite these risks and challenges, I reckon Amazon shares are a solid growth investment if the group stays on its current path. There could be plenty more growth to come from the business in the years ahead.
