How's it going today guys welcome back To stock radar I'm very happy to have You here and today we're going to be Talking about one of the most requested Companies that I get asked about on my Channel and that is Amazon now up until About a month ago this was one of my Largest Investments and in one of the Bonus videos in this group I talk about How I actually sold off my shares of Amazon and Google not for any reason Other than the fact that I am buying a House very soon and I had to free up Some cash now I was heartbroken to part Ways with Amazon I had over a 25 return Over six months with this stock which Was insane that is not a typical return You're going to see from the market but I did very well with Amazon again I Expect this stock to continue to perform Very well I had no reason to sell it Other than the fact that I needed some Cash but we're going to talk more about Amazon and a lot of people have concerns About this stock number one because of That Sky High p e ratio and number two It is a very expensive stock NOW do Remember that the price of a stock has Nothing to do with the actual share Price but the share price is very high Well over a thousand dollars so many People look at that stock and they're Afraid to invest that much money into a Stock because they think that it's
Expensive but again that doesn't have Anything to do with that share price We're going to talk more about this Stock it is expensive based on other Fundamental ratios but that share price Has nothing to do with it so first of All as we said the stock is Amazon they Trade under the symbol amzn they are a Newer company just 23 years old the type Of investment this is this is an Aggressive growth investment they have a P e ratio of 319 a very very high price To earnings ratio and a market Capitalization as unbelievable as it Sounds of 707 billion dollars this is a Massive company now the section there Where we normally talk about the Dividends is blank because despite the Size of Amazon they are not paying Dividends they are instead investing Back into the company and trying to grow As fast as possible rather than paying Dividends to shareholders and most People who are investing in Amazon are Completely fine with that due to the Performance of this massive growth stock So they're not too worried about not Getting their cash payments from Amazon Because the company is so involved with Reinvesting their earnings back into the Company to just become more and more Dominant so Amazon had very humble Beginnings starting off as an online Bookstore and they have come a long way
Now Amazon is the world's largest E-commerce retailer and the world's Largest provider of Cloud Computing Services a lot of people don't even know That Amazon is involved in cloud Computing but they are absolutely Dominating this business with 62 percent Market share of Cloud Computing Services This is a massive business for Amazon Another Pro for Amazon is the fact that Amazon video which comes with your Amazon Prime subscription is very Competitive when it comes to traditional Cable as well as other streaming Services out there not only that Amazon Is producing award winning original Content which is going to drive more People to this platform so we are seeing Cable dying off at this point they're Not dying just yet but they are losing Millions of subscribers every single Year and more and more people are Looking for online streaming services And Amazon has a very impressive package With Amazon Prime not only do you get All those benefits of that Subscription Service you also get the Amazon Prime Music as well as Amazon Prime video Which is on par with other subscription Services out there like Netflix and Hulu So they are competing with two very Large Industries both the traditional Cable subscriptions and the large Companies like Netflix and Hulu offering
Internet streaming of content another Pro for Amazon is something that I look For when I invest in companies and that Is that they are founder-led so Jeff Bezos founded Amazon 23 something years Ago as we said and he is still leading Amazon today not only that he has a Massive stake a massive investment in Amazon so obviously it is in his best Interest to have that share price of Appreciate it's going to increase his Net worth personally I always like to Invest in founder-led companies they Tend to be more Innovative and they tend To have better culture as the person who Founded that company is still in charge Another Pro for Amazon is that they have A very clear goal and mission statement Which is to become Earth's most Customer-centric company and I would say That they are more than delivering on That promise because there are millions Of loyal customers to Amazon myself Included I probably buy 15 to 20 Different things every single month on Amazon I want to get the most out of That Prime subscription and now that We're talking about Amazon Prime I want To go ahead and talk about how great That is for Amazon Amazon Prime creates Loyal customers and the thing with that Is the more you use it the more bang You're getting for your buck so every Time I go to make a purchase myself I
Always stop and I check Amazon first and Most times the price is better on Amazon Or I'm looking to buy something in bulk And I'm even buying my groceries on Amazon now many of my food product that Are non-perishable I buy it all on Amazon I probably spend anywhere from Five hundred to a thousand dollars a Month alone just on Amazon and the way I See it is the more I'm buying the more I'm taking advantage of that two-day Shipping and I'm getting more bang for My buck as far as my Amazon Prime Subscription so Amazon Prime creates Very loyal customers and they are also Finding that many people including Myself are beginning our shopping Searches on Amazon so when most people Would ordinarily go to Google and type In what they're shopping for many people Are now starting their search on Amazon I'm one of these people and that is huge Because Amazon is now pretty much Associated with online shopping they're The online shopping search engine Another Plus for Amazon is the fact that While e-commerce is huge for them it Still represents a very small piece of The total retail space so in 2017 E-commerce sales accounted for about 9.1 Percent of total retail sales in the United States and that number is Expected to climb to 12.4 percent by 2020 and I bet you guys can take a guess
Who will benefit the most from that Growth in e-commerce shopping another Pro for Amazon is the fact that they are Perfect for this new stay-at-home Culture that is emerging especially Among Millennials now personally I'm not A fan of this shift I still like Personal connections with people talking To people over the phone and you know When you call a restaurant and order Food that's what I like but a lot of Millennials are afraid to call people on The phone they do all of their ordering On apps on their phone and they like to Shop without having any personal Interaction and some people don't even Want to leave their house they just want To stay in their house that's the way People are shifting that's the way People are thinking whether or not you Agree with it Amazon is perfect for this New stay-at-home lifestyle that is Emerging where you don't even need to Leave your house to order supplies and Order your food whatever it is you need You can order it and in two days it's Going to be sitting there on your porch Another Plus for Amazon is that this is A global company e with Global Market Exposure we talked about this with Coca-Cola as well as how this is a Company that is involved in countries All over the world it gives you exposure To Global markets through a U.S company
Another Pro for Amazon is the business Culture of innovation and disruption if I were to describe Amazon and give them Two characteristics it would be exactly Those they are incredibly Innovative and Incredibly disruptive in the retail Industry and this again comes down to The mission statement of being Earth's Most customer-centric company they are Looking to serve customers in the best Way possible they look at how customers Are currently being served and they say We can do that better another thing I Like about Amazon is the fact that they Have the ability to take on massive Projects and they can solve massive Problems in the world and that again Comes from the talent at Amazon the size Of this company and their ability to Solve large problems I kind of compare This to Tesla where Tesla takes on these Very large problems and what what's Interesting is the fact that Jeff Bezos Often says that these large projects They are taking on it's going to take Them five to seven years to become Profitable with these businesses and That again just comes from having that Long-term long-sighted Vision that Amazon is so well known for a lot of the Times some of the things they are doing Don't make sense today because they are Thinking so far forward into the future And they're not looking for that
Short-term gratification or short-term Reward for their businesses they have no Problem with making long-term Investments because they know what will Be better off for them in the future to Be doing this today now guys I am just Covering my main points as to why I am So bullish on Amazon stock there are Many other reasons for example you could Talk about the Whole Foods acquisition And how they are looking to get into the Grocery space and eventually build Checkout lists grocery stores in this Country they're getting back into books As far as having storefront bookstores There are so many reasons to be bullish On Amazon I really couldn't cover all of Them in this video I just wanted to Cover my main points and the final one I Want to talk about is the Amazon Alexa Enabled devices now these Amazon enabled Devices are wonderful for so many Reasons first of all the potential iot Or Internet of Things implications where You have interconnectivity of devices in The home where Amazon can be connected With your lights or your security system And you can get all kinds of feedback And you can also control these devices With your voice it's also the fact that This is a very convenient tool to play Music and ask questions and get the Weather and also it is a way for you to Seamlessly order things on Amazon
Oftentimes we think of what we need While we are in that location so if You're in the kitchen you think okay I Need to buy this now instead of writing This down on your grocery list if you Have Amazon Alexa you can just say Alexa Add this to my grocery list or even say Alexa purchased this for me so what Amazon has done here with these devices It's provided something that offers Tremendous value to the consumer it Allows you to to listen to music and Control your home but it also allows you To be an even more loyal customer to Amazon because you're going to be Ordering things through that Amazon Device okay so now that we've talked About all these Pros for Amazon it is Time to move over and talk about the Cons of this stock first of all you Cannot get over the fact that this stock Is very expensive currently they have a Price to earnings ratio of 319 that Means that this stock is trading at 319 Times its earning potential now the Reason for this as we all know is the Fact that Amazon invests heavily into The growth of their business and they Would rather operate near break even and Be as Innovative as possible then reward Shareholders with dividends have higher Earnings and have somebody else edging Forward they want to be the most Innovative and disruptive company and
That requires a lot of capital Investment now looking at the forward PE It is still a 96 which is very high so Amazon stock is very expensive and it is A a stock that a lot of people can't Afford again because of the fact that The share price is so high now there are Ways that you can buy partial shares of Stocks I've never done it myself so I Can't speak to that but I know there are Services that offer you to buy partial Shares so you could throw ten dollars Into Amazon stock but as a complete Beginner if you're looking to buy Amazon Stock through a mainstream broker maybe Like Robinhood you're going to have to Have over a thousand dollars to invest In Amazon stock and a lot of beginners Don't have that so one con for this Stock is it doesn't have great Accessibility especially for beginners Another con for Amazon is the fact that They currently have a 1.7 percent profit Margin now as I've explained already This is because they are investing as Much as they can into the growth of this Company now most Amazon shareholders Trust Jeff Bezos they know that he knows What he's doing and he can better use That money to grow the company but Somebody looking at this stock on a Fundamental level seeing a 1.7 profit Margin that does not make for an Appealing investment and the sky high
Priced their earnings ratios do mean That Amazon is priced for Perfection now Before you think that I'm wrong about That I would say that Amazon does have Amazing growth potential especially with The projected growth of e-commerce but You can't get around the fact that the Share price has been climbing so fast And any one hiccup for Amazon could Result in a correction with this stock Do I expect that to happen personally I Do not we did see a dip in Amazon when We saw the sell-off on the Dow in 2018 But again it was not that much of a Correction and they bounced back like Overnight pretty much they bounced right Back so I don't expect to see Amazon Stock tumble by any means but understand That at the current valuation Amazon Needs to execute with perfection in Order to give shareholders what they are Looking for and if they are not doing That then you may see a sell-off take Place with Amazon so that is the one Major con with this stock is it is very Expensive so moving on let's talk about The moat for Amazon or their barriers to Entry basically what stops me from Starting my own Amazon like business Number one has to be their fulfillment Network they have an absolutely massive Fulfillment Network in order to have Two-day shipping in all these different Places and in some cases having
Overnight shipping or things like that It requires a massive fulfillment Network now how big is this network in The United States alone they have 119 Amazon Fulfillment centers what's Amazing to me is how much these Facilities actually cost the most Expensive one that has been built is in Utah and that was a 200 million dollar Facility so if I wanted to start my own Amazon like business and offer two-day Shipping all over the United States I Would have to build hundreds of Multi-million dollar fulfillment Facilities in order to do that that Makes this a very Capital intensive Business and one that a lot of people Cannot do the second barrier to entry For Amazon is that they have very loyal Customers I am a very loyal customer Myself and in September of two thousand 17 they had 90 million Amazon Prime Subscribers this again as we said Creates for very loyal customers because The more you order on Amazon the more Bang you get for your buck and you are Getting more out of your subscription Number three is the fact that Amazon is Sitting on a massive amount of data they Are a data company and again that Whole Foods acquisition just gave them access To more data as far as customer shopping Habits so knowing what products to Recommend to people what products to
Show on the front page there is a Massive amount of value in that data and That is something that people could not Compete with it would be very difficult To figure out what you should be Recommending to people and there was Tremendous value in that data number Four is the economy of scale and what That means is the fact that Amazon is Buying so many products from these Companies they are able to negotiate Pricing and get things at a cheaper Price if you were going to start selling Things online and have your own E-commerce business you would not be Buying anywheres near as much as Amazon Is buying and as a result you are going To be paying a higher price for those Goods they can negotiate because they Have leverage and they have a massive Amount of volume and as such they are Able to compete on price because they Are so large and the fifth and final Barrier that I see here for Amazon and There may be others that you guys see as Well as their project appetite it's the Fact that they are able to take on these Massive projects that many other Companies out there are just too small Or too timid to take on if you told the Company they were going to be taking on A project and they wouldn't see any Profits from that for five to seven Years most of them would shy away from
That but Amazon runs towards those Problems they have a massive appetite For these big problems and they execute With perfection anyways guys that wraps Up the beginning of this talking about Amazon as far as the stock the fact that They don't pay a dividend the very high P e ratio the pros and cons and the moat Now we're going to switch over and talk About the fundamentals of Amazon stock Okay so now we are going to look at some Of the fundamentals for Amazon first of All we are looking at the assets total Assets for Amazon have grown every Single year at an average rate of 17.8 Percent per year since 2014 and total Assets grew 62.2 percent from quarter One of 2017 to quarter four of 2017. What I'm typically looking for is double Digit growth with total assets but Seeing total assets growing 62.2 percent In one year from quarter one to quarter Four of 2017 is absolutely incredible Now cash and cash equivalents have grown As well every single year at an average Rate of 12.2 percent per year since 2014 And cash and cash equivalents grew 32.9 Percent from quarter one of 2017 to Quarter four of 2017. now it is Important to remember that quarter four Is always going to be the best quarter For Amazon due to the increased sales For the holiday shopping season so what We can gather from this is that Amazon
Is sitting on a pile of cash and total Assets are seeing consistent double Digit growth which is something I love To see from an investment the growth of Assets in 2017 was unbelievable and now We are going to look at the liabilities For Amazon so total liabilities have Grown every single year at an average Rate of 34.6 percent per year since 2014 And total liabilities grew 74.7 percent From quarter one of 2017 to a quarter Four of 2017. so what we can gather from That is that total liabilities are Growing at a faster rate than total Assets which is not something you Typically like to see as an investor When we look at the coverage ratio for Current assets and current liabilities We see that current assets have coverage Of them but not a lot they have a 1.04 To 1 coverage ratio for 2017 that means That all the assets that are in cash or Readily convertible to cash within one Year cover all their short-term debt or Debts expected to be paid in one year so What we can gather from this is that Amazon takes on a lot of debt to grow at The fastest rate possible and some Investors might not be comfortable with The slim coverage of current liabilities However Amazon has a proven track record With this break even business model so Most people are not going to question it Next we are going to look at
Stockholders equity and net cash flow From operations so we saw that Stockholders Equity has grown every Single year at an average rate of 37.4 Percent per year since 2014 and again What I am typically looking to see is Double digit growth seeing an average Growth rate of 37.4 percent is Stellar Stockholders Equity grew 27.8 percent From quarter one of 2017 to quarter four Of 2017 equally impressive now net cash Flow from operations has grown every Single year at an average rate of 42 Percent per year since 2014 and the net Cash flow from operations grew 221 Percent from quarter three of 2017 to a Quarter four of 2017 and and this is Mostly attributed to Holiday spending so What we are seeing here is that Stockholders Equity is growing at an Incredibly High rate which is something You always like to see as an investor so Looking at Amazon stock performance we See that Amazon has had Stellar Performance over the last five years Amazon stock is up 71.4 percent over the Last year compared to a 16.2 percent Return from the S P 500 so Amazon has Significantly outperformed the market Over the last year and equally as Impressive over the last five years Amazon stock is up 445.8 percent compared to an 80.2 Percent return from the S P 500 so
Amazon has also significantly Outperformed the market over the last Five years so what we can gather from This analysis is that Amazon is an Aggressive growth stock and the wind Appears to be in their sales however the Downside with this stock and the only Downside I can see is that sky high Price to earnings ratio and the big Question is are they priced for Perfection and this also blew my mind Looking at this here as I'm sure you Guys know we saw a correction take place In the market between January and February of 2018. on the right we have The S P 500 and on the left we have Amazon stock a lot of people want to get In on Amazon stock and they want to wait Until the right time to buy it but Looking at what happened during that Correction that took place we saw that This barely even impacted Amazon stock Amazon stock had a very slight Correction but it's already back trading At a level above where it was before the Correction had taken place and if you Look at the S P 500 the S P 500 is still Lower than it was before that correction Took place so you're going to have a Very difficult time trying to buy Amazon Stock on a dip looking at things like This and finally we have some key Financial notes for Amazon so gross Profit margin has increased every year
Since 2013 reaching 37.1 percent in 2017. net profit margin however was just 1.7 percent in 2017 so they have a very Slim profit margin because they are Investing heavily back into the business Now Amazon reports their income in three Segments that's Amazon Web Services International and North America and Sales for the Amazon web services Segment grew 42.9 percent in 2017 sales For the international segment growth 23.4 percent in 2017 and sales for the North America segment grew 33 percent in 2017. these numbers are absolutely Fantastic Amazon is seeing incredible Growth in their operations however it is Worth mentioning that the international Segment is still operating at a loss due To capital investment in infrastructure For fulfillment anyways guys this wraps Up our analysis of Amazon stock I hope You guys enjoyed this and I will see you In the next video
