Is now the right time to buy Amazon shares?

Delivering over 10% year-to-date returns, is now the right time to buy Amazon shares for my portfolio? Dylan Hood investigates.

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Over the past few weeks, Amazon (NASDAQ: AMZN) shares have been rising steadily. Peaking at an all-time high of $3,731 at the start of June, the share price dipped in August but has since risen to the $3,500 level. Could Amazon shares push above this all-time high in the coming months? Let’s take a closer look.

Good results

Amazon released its Q2 results on 29 July. As expected, these results contained some encouraging numbers. Operating income, net sales, and operating cash flow saw increases of 24%, 27%, and 16% respectively. So why did the Amazon shares tumble over 8% the same day? The reason for this, as my fellow Fool Charlie Keough pointed out, was the somewhat disappointing Q3 projections. Projected growth for Q3 was estimated to reach the $106bn-$112bn range, falling short of the original $119bn projections. This fall is likely due to the reopening of economies leading to less online shopping.

Although the share price dipped, it is important to note that these results still show growth. If Amazon continues this impressive growth moving forward, I expect the share price to rise accordingly.

Diversified business

Amazon boasts a heavily diversified portfolio of services and subsidiaries besides its traditional e-commerce business. Two notable mentions include Amazon Web Services (AWS) and Amazon Entertainment.

For example, Amazon Prime Video turned over a $108.5bn revenue in Q1 of 2021, reporting streaming hours had increased by 70% comparative 2020 Q1. This is a great example of how the firm benefited from the pandemic and why Amazon shares skyrocketed as a consequence. With the pandemic threat still lurking, it is businesses such as Prime Video that will continue to drive revenue higher for Amazon.

In addition to this, AWS has been gaining significant customer momentum and is currently the fastest-growing part of Amazon’s business. AWS has been selected as exclusive cloud software by a number of industry giants across multiple markets. These include Ferrari, BMO Financial Group, Swisscom, and the National Hockey League. This cross-industry presence is reflective of Amazon’s dominance in its field, and I don’t expect this to be challenged anytime soon.

Risks to Amazon shares

The one issue that Amazon could face moving forward is slowing growth. The rapid growth experienced in 2020 isn’t likely to be experienced again, and as increased competition arises, Amazon’s market share could dwindle. That being said, this is a longer-term factor but is still worth keeping in mind.

In addition to this, Amazon currently has a beta of 1.32. This means Amazon shares tend to move at a higher magnitude than the wider equity market. This exposes investors to much larger market risk.

I think that moving forward we will see equity markets push higher, and Amazon shares will directly benefit from this. Its broad business portfolio is great for increasing revenues but may face competition in the long term. Anyhow, I would add Amazon shares to my portfolio today.

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.

Dylan Hood has no position in any shares mentioned above. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended the following options: long December 2021 $130 calls on Ferrari, 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.

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