If you bought Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN) sometime over the last year and a half -and held on during the more turbulent stretches- then give yourself a pat on the back.
So says portfolio manager David Fingold, who thinks the e-commerce king is now firing on all cylinders.
“We like it. This is a company that has just reasserted itself and that’s after approximately 18 months of underperformance. And that’s what we like — we like to find long-term outperformers who went sideways for a while and their valuation compresses, business is still good and the stock starts working again,” said Fingold, vice president and senior portfolio manager at Dynamic Funds, who spoke to BNN Bloomberg on Tuesday.
“I would say that on a valuation basis you could have bought this stock for most of the last 18 months. I think it became statistically inexpensive at the end of December 2018,” he said.
Amazon is once again the talk of the town after a killer quarter delivered last week which sent the stock above the $2,000 per share mark and pushed the company into the trillion-dollar club in terms of market capitalization.
Amazon’s fourth quarter hit $87.44 billion in revenue, a 21 per cent increase over the previous Q4 and above analysts’ estimates averaging $86.02 billion. But the bigger deal was the $6.47 per share in earnings compared to the Street’s expectation of $4.03 per share, with the company’s net income growing eight per cent year-over-year to $3.27-billion, compared to the previous quarter where net income dropped a full 26 per cent.
The company made a gamble last year by launching one-day shipping, undercutting the competition but negatively impacting its profits along the way. But the move appears to have been successful, as the quarterly numbers bear it out.
“The issue was that there was some margin compression because they had called out in the prior two quarters that more of their competitors had been giving away free shipping. They started a bundle of free shipping and they started to really push the amount of one-day shipping they were doing. That temporarily increased margins because it increased the operating expenditure,” Fingold said.
“But the revenues have continued to expand and now they’re getting operational leverage against it and you’re seeing margin expansion,” he said. “The other thing is that you have a shift over time to the 3P business, the one where they provide payments and logistics to other merchants and that’s a very high margin and high return on invested capital business. And then you’ve got Amazon Web Services which is again a high margin, high return on invested capital [business] and the best-in-class cloud hosting business for large enterprise.”
On the strong quarter, CEO Jeff Bezos said in a press release, “Prime membership continues to get better for customers year after year. And customers are responding —more people joined Prime this quarter than ever before, and we now have over 150 million paid Prime members around the world.”