Motley Fool: big prices, big prospects
Shares of Amazon.com (Nasdaq: AMZN) were recently listed at nearly $ 3,500 per share – and the stock is still attractive at that level.
One of the reasons the price is so high is simply because the stock hasn’t split since 1999.
Amazon is experiencing strong momentum in several important metrics, including e-commerce sales and cloud computing revenue.
Its revenue for the nine months ending September 30, 2021, was $ 332.4 billion, up nearly 28% year-on-year, helped by a 36% increase in revenue from the cloud computing from Amazon Web Services (AWS) and nearly 70% year-on-year. -year of increase in the company’s âotherâ revenue, which is mainly made up of Amazon’s fast-growing advertising business.
And during the same period, the bottom line grew by 35%.
Analysts are unsurprisingly expecting huge profit growth from Amazon. Current forecasts from consensus analysts predict that Amazon’s earnings per share will grow at a rate of 36% per year over the next five years.
Amazon’s high price tag shouldn’t deter long-term investors, as many brokerages allow you to buy fractional shares. With $ 1,000, you could buy a third or a quarter of a share.
(The Motley Fool owns stock and has recommended the stocks and options of Amazon.com. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool.)
Ask the fool
Question: When reviewing the financial statements of a company I would like to invest in, what are the numbers to consider? – Florida, Worcester, Massachusetts
A: Evaluating a business closely before investing in it – by evaluating and calculating the numbers in its major financial statements (the balance sheet, income statement, and cash flow statement) – is a smart move.
On the balance sheet, little or no debt is good. Also check that inventory levels and accounts receivable are not increasing faster than sales.
On the cash flow statement, you’ll typically want to see that most of the company’s cash comes from ongoing transactions – products or services sold – and not, for example, from issuing debt or shares, or the sale of assets.
Positive and growing free cash flow is also promising.
Strong profit margins (gross, operational and net) can be a sign of a high quality business, reflecting proprietary brands or technology for which it may charge more.
Also check the numbers from previous years to see if the margins have gone up or down – and perhaps compare them with those of the competition.
You can learn how to calculate these and other metrics by researching them online. Our Investing Basics corner on Fool.com is also helpful.
Question: What are some good books on value investing? – WP, Victoria, Texas
A: Try “The Little Book of Value Investing” by Christopher H. Browne (Wiley, $ 25); âInvesting in Value: From Graham to Buffett and Beyondâ by Bruce C. Greenwald, Judd Kahn et al. (Wiley, $ 35); or âThe Smart Investorâ by Benjamin Graham (Harper Business, $ 25). You can get a good introduction to investing in general in “One Up on Wall Street” by Peter Lynch (Simon & Schuster, $ 19).
My dumbest investment
In the 2000s, I bought shares of the leading offshore oil and gas drilling specialist Transocean for $ 71.
After my initial investment doubled in value, I bought more, to almost $ 150 per share, thus doubling the number of shares I owned. I ended up selling all of my shares for just over $ 30 each. Sigh. – RM, online
The madman replies: Ouch. It’s a tough loss, but maybe you can take comfort in the fact that the stocks were recently trading around $ 3 each? You have lost a lot, but it is clear that you may have lost a lot more.
Experiences like these are worth pursuing for any lessons to be learned.
For example, think about what prompted you to buy: What did you like about Transocean and what were you expecting?
Thinking back to the buying decision, do you know of any factors that you did not take into account? Did you miss any red flags that could have caused you to sell sooner?
Transocean has often seemed like a sane stock to own, but during the time you owned it, it was hit by the 2007-2008 credit crunch that brought the entire stock market down.
The fall in the price of oil hasn’t helped either – nor has the pandemic, which has hurt the global economy. The future of the business is not necessarily bleak, but it still faces tough times.