If You Invest $1,000 in Amazon Today, Here's What You'd Have in 5 Years
Key Points
Amazon's sales have been growing at a nice clip.
Investors can use a range of sales assumptions and multiples to calculate future stock prices.
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For anyone investing, the goal is to end up with more money than you start. Of course, it helps to compare your investment to a benchmark. For stocks, particularly large-cap equities, the S&P 500 index is a good benchmark.
Amazon (NASDAQ: AMZN) has made investors a lot of money over the years. However, the shares' 63.9% gain over the last five years, through May 18, trailed the S&P 500's 92.8% total return.
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That means a $1,000 investment in Amazon shares would be worth $1,639 today. But if you'd invested in the S&P 500, you'd have $1,928. The key question is, how much will you have in five years if you invest $1,000 in Amazon today?
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Estimating future growth
Before looking at potential sales growth, it's useful to see what's happened recently with Amazon's top line. Last year's sales grew more than 12% to $716.9 billion, or $66.22 a share.
Amazon followed this up with 17% sales growth in the first quarter, and management projects a 16% to 19% increase for the second quarter.
Assuming a 12% sales growth, in line with 2025, the company's sales per share will reach $116.70 by the end of 2030.
It's instructive to use different growth rates. With a more conservative 8% pace, sales per share would increase to $97.29.
Investors will find it's easier to calculate future sales since earnings can fluctuate quite a bit. Amazon's 2025 diluted earnings per share (EPS) increased by nearly 30%, but the figure was affected positively by non-operating income, making forecasting future EPS challenging.
What's the sales multiple?
The next step in the calculation involves choosing an appropriate price-to-sales (P/S) ratio. Currently, Amazon's shares trade at a P/S ratio of 3.8, above the 10-year median of 3.4.
Using more conservative assumptions, the $97.29 sales per share times 3.4 works out to a future stock price of about $331. At the higher P/S multiple of 3.8 and 12% sales growth, the share price would equal $443.
Now that share price ranges have been calculated, let's move on to the final step.
Putting it together
Amazon's stock price closed at $259.34 on May 19. Buying four shares means you'd invest $1,037.
At the low stock price estimate, you'd have $1,324 at the end of five years, about a 28% gain. If the share price reaches $443, your investment would be worth $1,772, or a 71% increase.
Obviously, that's a big range, but it's a useful exercise to quantify what might happen to Amazon's stock price under different scenarios. Amazon's sales prospects look enticing right now as organizations adopt artificial intelligence, but it's important to continue monitoring the company's progress.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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