Meet the Monster Stock That Continues to Crush the Market

Key Points

• This company dominates the e-commerce space, which will continue to grow in the years ahead.

• A sizable and growing portion of the company's revenue comes from high-margin activities.

• Though the stock has risen monumentally over the long term, its current valuation is compelling.

• 10 stocks we like better than Amazon ›

The best investors can spot winners early. By having conviction in your picks and letting the power of compound growth work its magic over time, the returns you can reap from recognizing an up-and-coming powerhouse before it becomes a household name could be substantial.

But there's a simpler way to win in the market than trying to predict the future and identify tomorrow's most successful companies today: Simply invest in already obviously dominant businesses that are right in front of you.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

For example, one monster stock you shouldn't miss has soared by 28% in the past 12 months, and you're certainly already familiar with the name.

Image source: Getty Images.

High-margin revenue coming in

Despite the company having been around for over 30 years, with a business model that is constantly evolving to take advantage of different opportunities, many investors still view Amazon (NASDAQ: AMZN) as an e-commerce juggernaut first and foremost. That's not surprising. Its online stores and third-party seller services segments, which relate to its marketplace operations, generated $102 billion in net sales in the second quarter -- 61% of the company's total revenues.

Online shopping can still be viewed as a growth market. For instance, in the U.S., more than 80% of retail spending still happens in physical stores. No one knows for sure at what level the growth of e-commerce will ultimately plateau, but it clearly still has a lot of room for expansion. Since Amazon provides a superior customer experience, we can expect that it will keep benefiting from this trend.

However, Amazon's revenue mix is transitioning. Amazon Web Services (AWS), which was once a cost center, has now blossomed into a thriving segment. The company's cloud platform provides various data, storage, and computing services, and it has been a major growth engine. Its revenue in the second quarter of $30.9 billion was up 186% compared to the same period five years earlier.

Recently, AWS has been Amazon's most important segment, particularly when it comes to artificial intelligence (AI). As demand from customers grows to build new capabilities using this technology, AWS will benefit.

And it's a profit machine that has benefited tremendously from greater scale. In each of the past six quarters, AWS has posted operating margins of at least 32.9%. It is poised to become the bigger contributor to Amazon's bottom line.

Some investors might overlook Amazon's advertising business, but that segment alone collected $61 billion in revenue in the past four quarters. That puts it behind only Alphabet and Meta Platforms in the digital ad industry. The former reported an operating margin of 32% in Q2, while the latter's was 43%. Those figures imply that Amazon is making some serious profits from its own digital ad sales.

Recently announced partnerships with Netflix and Roku, which give advertisers using Amazon's demand side platform access to ad space inventory on these streaming services, also demonstrate its strong competitive position.

Now might still be a good time to buy Amazon

After seeing a stock soar 28% in the past year and 779% over the past 10 years, it would be reasonable for investors to think that they've missed the opportunity to buy. There's no way shares with that much growth behind them can continue crushing the market, right?

This might be a flawed conclusion to reach when it comes to Amazon. The company still has lots of top-line growth potential. Plus, an ongoing focus by the management team on running the business with operational efficiencies could drive earnings gains. This is a favorable setup.

However, Amazon's valuation is what should excite investors. The stock looks attractively valued, trading at a forward price-to-earnings ratio of 29.6. This is a good entry point for investors to put money to work. Amazon stock likely won't repeat its stellar past performances, but it will likely keep winning.

Should you invest $1,000 in Amazon right now?

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Netflix, and Roku. The Motley Fool has a disclosure policy.