So this past week Amazon (NASDAQ: AMZN) stock reached an all-time high of $1,000 per share. It went the extra step by propelling to $1,008 for a short period of time and then slightly retrieved back closing at $1,006 per share this past Friday, June 2nd.
Many are wondering whether they “missed the boat” with Amazon and whether they should even consider the company as an investment at this so-called “astronomical” stock price.
In this post, I’d like to explore both sides of this investing puzzle and also provide you with some alternatives to consider.
Before we dive into this topic I’d like to remind you of the following: If you are considering putting money on Amazon or any publicly-traded company keep in mind that it should be money you have available to invest and that you can fully accept to lose if the market suddenly plunges by 50%+ on Monday (yes this can happen!!).
The thing with stock investing is that while it can bring high rewards it also comes with a price tag called risk. I recently wrote a post about what it really means to invest in stocks. If you missed it, check it out here.
I’ve said this a million times in my book, my social media content, and to anyone that is listening to me and I’ll repeat it again:
Money you need in the short term – within the next 3-5 years – should not be in the stock market. It should be in a bank account, preferable in a high yielding savings account – safe, protected, and readily available for when you need it.
Now that I’ve specified that (again) we shall now continue …
Ok. So … Yes. Amazon stock is considered ‘expensive’ even far beyond the price you see at face value.
There’s a finance metric called the Price to Earnings ratio (the P/E) which tells investors how ‘ overvalued’ a company may be in comparison to other companies within its same industry and the market as a whole. I go further into this in my investing course but here is a general snapshot:
- Current P/E of the market: 21.2
- Current P/E of companies in Amazon’s industry: 43.2
- Current P/E of Amazon: 187.3
Without me having to explain any math or go into any formulas you can already see there is a huge difference in those numbers.
All you need to know about the numbers above is that “valuation” tells us Amazon is “overpriced” or “overvalued” in comparison to companies in the same industry and the market as a whole.
Now that we’ve slightly covered the price and valuation situation, let’s jump into the two sides of the coin when it comes to investing in Amazon.
1. If your desire is to buy Amazon as an individual stock, you’ll have to buy several shares in order to make any significant money in this company. Remember that when it comes to stocks and investments the money that you make is directly proportionate to the cost of that investment and the number of shares that you own.
So, for example, if you own 1 share of a stock that is trading at $995 per share and the stock goes up to $1020 – your profit on one single share is $25. And so, it often makes more sense to be able to buy a lot more than one single share otherwise you’re not making much.
2. Amazon doesn’t pay dividends so the money that you make will depend solely on capital gains (how much the stock rises from the price at which you bought it).
3. The stock can go back down for no reason at all and you’ll be losing money (on paper*) until the price goes up again.
As a matter of fact, this stock is actually quite ‘moody’ meaning the stock price tends to swing up and down significantly. Check out the swings over the past 3 years. Important to note that regardless of the swings the gains have been quite significant nonetheless.
*Remember as long as you don’t actually sell your shares you don’t realize a loss (this applies to all stocks and investments).
1. Amazon is probably not going anywhere anytime soon. The thing with Jeff Bezos (Founder & CEO of Amazon) is that he seems to have this ultimate goal of wanting to take over every popular industry known to man. From bookstores to groceries, to smart homes, to virtual reality, and everything in between. Amazon seems to have a presence everywhere!
The future seems bright. It is my own personal opinion that there is a higher probability that Amazon will continue to grow, expand, and thrive vs. Amazon going out of business tomorrow. That’s just my perspective but I would love to know what you all think.
2. You can always start a position and then add to it as time goes by and as you can comfortably afford more shares.
1. You can purchase a low-cost ETF or Index fund that includes Amazon and other similar companies. You’ll still be a part owner at a much lower price.
2. There are TONS of publicly traded companies out there that are a lot more “affordable” than Amazon and ALSO have the potential to make you a whole lot of money. You can definitely let this one go and get on with your life. 🙂
And that’s all folks! I would love to hear your thoughts on the pros and cons case for Amazon and where you feel this company is headed (or not) within the next 5-10 years.
Cheers to profits!
Courses and Resources:
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