In the annals of U.S. corporate history there is no company that has as large and lengthy a runway of opportunity as Amazon.com (AMZN) .
It is that prism of opportunity that supports my strong belief that Amazon's earnings growth will far exceed consensus expectations in the 2019-2022 period.
Here are the keys to my increasingly bullish case:
- Amazon's first-mover advantage is now impenetrable; the company no longer can be caught by its competitors.
- Amazon's broad product offerings and technological advantages no longer can be duplicated.
- Nor is Amazon likely to be caught by regulators. Indeed, the existential threat of more regulation and the possible imposition of growth constraints seem to be sharply diminished probabilities unless a progressive Democratic aspirant captures the White House -- an increasingly unlikely event. (See my prior discussion of this.)
- On the wings of a nearly zero cost of capital Amazon has expended enormous sums of capital to produce the massive and insurmountable competitive advantage that exists today. That "kindness of strangers"in such scale likely will never be duplicated again by a competing business entity, thus placing Amazon light years ahead of its competition. Indeed, in this marathon of disruptive growth (a marathon approximates 26.2 miles), Amazon is at least 20 miles ahead of its closest competitor.
- Based on my company analysis, Amazon is about two years away from "hockey stick" earnings-per-share (EPS) growth that will far exceed consensus expectations. The source of my profit optimism and above-consensus growth projections are several fold, but are keyed on an expansion in operating leverage and profit margins produced by a lower rate of growth in expenses and higher top-line results. The latter will be aided by continued above-expected core retail sales gains and the anticipated success in the company's high-margin advertising initiative as well as other emerging businesses.
- Based on our EPS models and our more optimistic assumptions of top- and bottom- line growth, I anticipated that EPS results for 2019, 2020 and 2021 will exceed consensus forecasts by more than 10% in each of those years -- and possibly considerably more! Also, 2021 is the year when the largest gain relative to expectations is projected. With more than one quarter of this year already in the rear-view mirror, it is not too early to consider results out two years.
- The shares of Amazon have not been materially embraced and exploited relative to other peer stocks by institutional investors. As an example (and anecdotally), in my Bull/Bear debate with Tobias Lefkovich at Citigroup on Monday, the audience of large institutional investors was asked how many held the shares of Amazon. Only five out of about 30 investors answered the question affirmatively.
In terms of the other three FANG constituents, Amazon has the lowest component of institutional ownership: Institutional Ownership as a Percentage of Shares Outstanding
- In emphasizing Amazon's retail, emerging business and operating/financial strengths, I have not even discussed AWS cloud services, which I will save for a further discussion. It's the icing on the cake.
After a series of forays on the short side (some profitable, some unprofitable) over the last few years, I purchased Amazon in late December and added the stock to my Best Ideas List as a long on Dec. 26, 2018, at $1,383. The shares are currently trading at about $1,820. I cited:
"Amazon's business franchise is secure and getting stronger. The competitive threats seem surmountable, and its market share appears to have a widening moat. The company's shares have also already materially discounted a modest threat of heightened regulation, which no longer seems as very threatening in any case."
- Kass Diary, "The Case For Amazon"
At that time, the broad markets were in disarray, there were concerns about the company's previous reporting quarter and the divorce of CEO Jeff Bezos raised vague questions about company control.
"If a window of opportunity appears, don't pull down the shades."
- Tom Peters
With the risk of the company's growth expansion plans no longer in jeopardy, Amazon's competitive position is firming and its business moat has deepened. Its first-mover advantage and lead has multiplied over time and the company's competitive reach is not likely to ever be challenged.
It is now likely that a "hockey stick" in EPS results will gather speed over the next three years and that the company will produce sales and profit growth that substantially exceed investors' expectations.
I expect that Amazon, in the fullness of time, will become the first $2.5 trillion company.
Sometimes the best investment opportunities lie right in front of us, and Amazon might be the best example of this phenomenon today.
(This commentary originally appeared on Real Money Pro on April 4. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
Will You Have Enough Money to Retire?
Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert "Mr. Retirement" Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.