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I'm looking at the amazon (NASDAQ:AMZN) and I firmly believe that the business is very well structured for long-term investment gains. However, there are times when it is wise to buy more and others when it is best to show restraint.
Right now, with its price-to-sales ratio around 3.3, I'm wondering if the value opportunity I took advantage of in 2023 is over.
<h2 class="wp-block-heading" id="h-amazon-s-relentless-innovation”>amazon's relentless innovation
Most notably, management has positioned the company as one of the leaders in artificial intelligence (ai). It is managing it through a three-tier approach, including ai infrastructure, tools for building ai, and applications that leverage ai.
In addition, the company is planning a foray into the healthcare sector with disruptive projects such as amazon Pharmacy and amazon Care. I think this could be a very high growth opportunity for the company.
I'm also excited about how its logistics network will develop as artificial intelligence and robotics evolve. Drones are likely to become more common for deliveries, and robots could even deliver packages to homes. These implementations are likely to result in higher profit margins as the company is less reliant on human labor.
The Value Investor Mindset
Despite my optimism about amazon's future, I still need to maintain the right investment strategy to be successful with its stock.
I think the best time to buy a company is when others have been selling aggressively for quite some time, but the company's long-term prospects still look good. This can happen for a variety of reasons, but in the case of amazon, there was a big price drop recently because it reported a loss due to an investment in rivian that has been losing value.
Now, shares are approaching all-time highs again, up about 125% from the 2022 low. That means the great value opportunity is probably already over. This is further evidenced by the fact that the price-to-sales ratio was around 1.7 in 2022. Today, it is 3.3, which is roughly equal to its 10-year median.
I still own the shares
While I think the biggest value play here is over, I'm confident the future of the business remains bright. That's why I'm not selling my shares, I'm just unlikely to buy more at the moment.
In my opinion, a moderate correction in the stock price is very likely to occur soon. However, this is not likely to last long. Certainly, in the next 10 years, I expect the investment to outperform most major indices such as the S&P 500.
I just have to remember that because it is so highly valued, any loss or slowdown in business growth can bring serious periods of price volatility. And with amazon's main markets in Western economies largely saturated, it now relies more on international expansion for its profits. This could be problematic if foreign economies respond less than expected to the administration's proposals.
I like other investments better
I think right now I can make bigger additions to my portfolio, like buying more Alphabet Share. This is another great technology investment involved in ai that I believe offers high prospects for future growth and good value for money.
I think amazon is a wonderful business, but I can't justify increasing my position at its current valuation.
