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.
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.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 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.