Amazon (NASDAQ:AMZN) stock was one of the pandemic’s big winners as online retail exploded in a world where stay-at-home orders became commonplace. However, as public health restrictions were relaxed, the e-commerce giant surrendered all those gains. The company lost over half its value in 2022.
With the Amazon share price anchored below $100 in recent days, I sensed a bargain and invested in the company for the first time. Time will tell whether that was a wise move.
But, how much would I have now if I’d invested $1,000 half a decade ago? Let’s explore.
Should you invest £1,000 in Amazon right now?
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Five-year return
As the five-year chart below shows, Amazon’s pandemic boom was rapid. The stock then flatlined for around 18 months before sinking to today’s levels. It’s been quite a journey for long-term shareholders to say the least.
Five years ago, Amazon shares were $70.26 each. So, with $1,000 to invest, I could have bought 14 shares, leaving me $16.36 as spare change.
At today’s share price of $97.24, my position would be worth $1,361.36. Despite the roller-coaster ride, that’s still a respectable 38% return over five years.
However, over that timeframe the stock’s reputation as an investment to beat the market has been tarnished somewhat. For context, the S&P 500 index advanced 52% since 2018.
Also, Amazon isn’t a good choice for passive income seekers. The company doesn’t pay dividends, so I’d have no additional pay-outs to add to my total return.
Something else to bear in mind is, as a British investor, I’d have benefitted from sterling’s depreciation against the dollar over the past five years. Accordingly, when converted into pounds, my return would be higher than my calculations measured in greenbacks suggest.
Currency risk is a factor I consider when investing in US stocks. While that would have worked in my favour over the past half-decade, that won’t necessarily be the case in the future.
The outlook for Amazon stock
So, is Amazon a good investment today?
At first glance, there are still some dark clouds on the horizon. The company recently announced 9,000 job cuts to bring the 2023 total to 27,000 layoffs. Efforts to streamline the business could boost the bottom line but there’s a risk this could impact the service quality customers have become accustomed to.
However, fourth-quarter sales beat Wall Street expectations. Growth of 9% brought the total to £121bn. Furthermore, Amazon Web Services continues to show positive momentum, posting a 20% increase in sales — yet, this was the lowest rate of expansion for the division in the firm’s history.
So, it’s fair to say the financial picture is mixed. That said, I’m bullish on the company’s long-term prospects. Amazon has undertaken a multi-decade investment programme in logistics infrastructure, which puts it in a good position to benefit should consumer confidence improve.
What’s more, its advertising and cloud computing divisions show residual strength, despite a slowdown in the rate of growth. Overall, the risk/reward profile looks reasonably attractive to me after a big share price fall, but there are plenty of challenges ahead.
I recently took a small position in the stock and will closely monitor this year’s financial results for evidence that the bull case remains intact.
