The ultimate growth stock to buy for $200 right now

If you’re looking for a growth stock to help you build retirement wealth, it’s not enough to just pick a stock of any growth company that regularly hits new highs. There are other important qualities you want to look for.

Obviously, you want a company with outstanding growth prospects, but it’s also beneficial to invest in a business that has a loyal customer base that regularly spends money with the company. This adds resilience to the business, especially during recessions and bear markets.

A company that immediately comes to mind is Amazon (NASDAQ: AMZN). Here are three reasons why.

1. Repeat revenue from millions of customers

Amazon has millions of retail customers who regularly use their Prime membership to order multiple items each month. Statista estimates the number of US Prime members at 167 million and over 200 million worldwide, with about 42% of US Prime members making between two and four purchases each month. This is a big reason why Amazon has become a massive business, with revenues of $604 billion in the last 12 months to June 30, 2024.

In the last four quarters, Amazon generated $42 billion from subscriptions and $237 billion from its online store. The company continued to expand its same-day delivery and grocery delivery to Prime members, which shows the potential to find more ways to increase purchase frequency and increase revenue.

Amazon also generates recurring revenue from its enterprise cloud service. Amazon Web Services (AWS) is the world’s leading cloud computing provider with millions of customers in more than 190 countries. AWS contributes less than 20% of Amazon’s total revenue, but importantly is its most profitable business, contributing about two-thirds of the company’s operating profit.

2. Amazon has tremendous growth opportunities

Amazon’s online store and cloud business have a huge market to expand into that can keep the company growing for decades.

The global e-commerce market is set to reach $6 trillion this year, according to eMarketer. It’s expected to reach $8 trillion by 2028, so Amazon has the advantage of chasing a growing market.

As for AWS, the opportunity is even more lucrative for shareholders. AWS revenue grew 19% year-over-year to $98 billion in the last 12 months. However, it is estimated that at least 80% of enterprise data has not yet moved from on-premises servers to the cloud.

With that much opportunity, AWS could one day grow into a very large business — potentially Amazon’s biggest source of revenue. The high margins from cloud services would significantly boost Amazon’s profitability and drive the stock higher.

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3. The stock has great upside potential

Amazon always looks expensive on a price-to-earnings basis. This is because management is not managing the business to maximize earnings per share, but to maximize long-term cash flows from operations.

Using Amazon’s cash from operations (CFO) per share, the stock trades at a price-to-CFO multiple of 18.4. Despite the stock doubling in value over the past five years, it trades at its lowest P/CFO valuation in 10 years.

Amazon’s cash from operations has tripled over the past five years to $107 billion. In the chart, notice how the stock has increased in value as the company’s cash from operations has grown, but the stock continues to trade in the same range on a P/CFO basis. Given Amazon’s opportunities in e-commerce and cloud services, its cash from operations will continue to grow over time, and that likely means more new highs for the stock price.

The stock is currently trading just above its recent high of $201, so for an investor who only has a few hundred dollars, now is a great opportunity to buy.

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

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. John Ballard 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.

The Ultimate Growth Stock to Buy With $200 Right Now was originally published by The Motley Fool