Why I’ll buy Amazon shares in the next stock market crash

Amazon is one of the most valuable companies on the stock market, but its shares are prohibitively expensive in my opinion.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Amazon (NASDAQ: AMZN) is one of the few companies that actually benefitted from the pandemic. For evidence of this, look no further than the cost of Amazon shares, which quickly skyrocketed a mind-melting 40% in just three months.

But with Amazon shares now trading for more than US$3300  each, I believe that they are simply too expensive for an average investor to take a risk on, especially when the possibility of a stock market crash is just around the corner.

The case for Amazon

At this point, Amazon is so ubiquitous in our lives that it barely needs explaining. However, for the uninitiated, it is an online retail company that functions both as a marketplace for its own consumer products and private sellers wishing to reach a wider customer base.

Although Amazon shares have a price-to-earnings ratio of 58:67 (a little high for my liking), the company has a market capitalisation of $1.7 trillion, gross profits of over $100 billion a year, and revenues that have increased steadily by an average of 30% each year since 2018. But unlike many other companies, it doesn’t use these profits simply to enrich its shareholders and instead focuses on reinvestment and growth, either through the development of new products or through acquisitions.

Amazon now owns or partly owns more than 100 other companies across multiple industries, such as Tech, Food, Media and Medicine, so when you buy Amazon shares, you get exposure to all these sectors. It has even branched out into the subscription business model through its Prime delivery service.

The only real risk I see to Amazon’s long-term growth would be a forced break up by the U.S Government but, given how business-friendly the major political parties are, I view this as unlikely.

Why wait for a crash?

If the company’s fundamentals are as good as this, why should I wait to buy Amazon shares? Well, it has to do with the sheer amount of borrowing that has taken place over the last 18 months. With interest rates as low as they have been, institutional investors have been taking on debt like there’s no tomorrow and putting all that borrowed capital into the stock market. This has caused a speculative mania around the world, causing most markets to put in new all-time-highs every few months.

However, it is my opinion that this uptrend is unlikely to continue much further. Interest rates will have to go up to counter inflation and when they do, institutions that bought shares back in March and April of 2020 will see that it’s time to cash out. I do not want to buy the top and be left holding the bag when the bottom drops out.

It can be hard to sit on the side-lines as a stock’s share price continues going up and up. But if I remain patient, a crash represents a great opportunity to buy valuable shares at discounted rates. With fundamentals as strong as these, Amazon shares are definitely the first thing I will buy when the stock market has its next downturn.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK does not have a position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »