Amazon (NASDAQ: AMZN) shares have been taking a breather this year. After the stock nearly doubled in 2020, the shares have returned just 9% in 2021. By comparison, tech giants Apple and Microsoft have returned 38% and 13% respectively.
Over the past 12 months, Amazon shares have returned 17% compared to Microsoft and Apple’s 48% and 33%.
So what’s gone wrong, and should I take advantage of this opportunity to buy the stock?
Even though Amazon’s reported robust sales growth over the past 12 months, its share price has failed to follow revenue higher. Indeed, for the quarter ended 30 June, sales increased 27% year-on-year, while net income rose 48% year-on-year.
However, the company is having to spend enormous sums to meet consumer demand. It’s hired hundreds of thousands of new staff around the world over the past 12 months. And it’s also having to pay a premium to get hold of these new workers.
Last week, the company announced it would be hiring an extra 125,000 workers in the US. The new starters would earn $18 an hour, the group reported. The federal minimum wage in the country currently stands at $7.25 an hour.
Not only does Amazon have to pay more to hire staff, but it may also have to pay more tax. Under the global minimum tax agreement announced earlier this year, policymakers singled out Amazon for not paying enough.
On top of these factors, the group’s facing increasing competition in all of its markets. From e-commerce to cloud computing and online advertising, Amazon’s working hard to fight off its rivals.
The outlook for Amazon shares
Considering all of the above, I’m not surprised investors have been giving the company the cold shoulder this year. Companies like Apple have a much stronger brand and loyal customer base. Amazon’s products have many competitors.
Nevertheless, the company’s hefty investments in infrastructure are paying off. It can fulfil orders faster and more effectively than many of its competitors. Its heavy investment in technology is also helping its other businesses gain an edge over the competition.
These are the main reasons I think Amazon shares are worth buying as a long-term investment for my portfolio. Yes, the company does face some significant challenges, but its relentless drive to be better and improve its offer for consumers has helped to gain an edge in the past. As long as management doesn’t lose focus, I think the group will maintain the edge over its peers.
As the company’s profits grow, it can reinvest this money back into the business. It may even branch out into different sectors, which it’s been able to do quite successfully in the past.
As such, while the market’s giving Amazon shares a wide berth, I’d buy the stock for my portfolio, considering its potential.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft 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, Apple, and Microsoft. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. 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.