Should You Consider Buying Amazon Stock? Pros, Cons, and Alternatives

amzn

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 snap shot:

  • 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

Source: Morningstar.com

Without me having to explain any math or go into any formulas you can already see there is a huge difference in those numbers.

Now that we’ve slightly covered the price and valuation situation, lets jump into the two sides of the coin when it comes to investing in Amazon.

Cons:

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 minus any commission fees charged by your online broker. 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 and nothing else.

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. 

Amazon Charts

*Remember as long as you don’t actually sell your shares you don’t realize a loss (this applies to all stocks and investments).

Pros:

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 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.

Alternatives:

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! 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!

Mabelle

PS: Did you knowyou can check out ALL the newsletters from 2016 in our exclusive eBook.  If you are looking for our Amazon bestseller for investing beginners, Click here.  

Remember … never invest or cease to invest based solely on the information provided on this blog. My content is for educational and informational purposes only. Full disclosure – currently long on AMZN.

 

Advertisements

3 thoughts on “Should You Consider Buying Amazon Stock? Pros, Cons, and Alternatives

  1. Paula

    Mabelle, I love reading your blog posts! So easy to follow and priceless information. Thanks for all you do!

  2. MsPursestrings

    Reblogged this on Pursestrings and commented:
    My friends and I were just discussing whether to buy Amazon shares. This blog by Girls on the Money, reminds me why I do not own any Amazon shares and Lord knows I love me some Amazon. Certainly worth a read. What are your thoughts?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s