Is It Too Late to Get in on This Millionaire-Maker Stock?

By Leo Sun Markets Fool.com

Amazon (NASDAQ: AMZN) went public in 1997 at $18 per share. A $2,000 investment would have been enough to buy 111 shares, and those shares would have split to 1,332 shares today -- which would be worth over $1.13 million.

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That explosive growth made Amazon one of the greatest multi-bagger growth stories of the past two decades. Yet Amazon continues to grow, soaring 50% over the past 12 months and lifting its market cap past $400 billion.

Image source: Amazon.

But after those big gains, investors might be wondering if it's too late to buy shares of this millionaire-maker stock. I believe it isn't, for six simple reasons.

1. Its valuations are still reasonable

A common bearish argument against Amazon is that the stock looks too "expensive" at 174 times earnings. However, that view ignores Amazon's impressive earnings growth rate. Amazon grew its earnings per share by 292% in 2016, compared to 140% growth in 2015 and a net loss in 2014.

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Analysts expect Amazon's earnings to rise 49% this year and 75% next year. Based on those estimates, Amazon trades at just 67 times forward earnings -- which is reasonable relative to its growth rates.

2. AWS is just getting started

Amazon's key profit driver over the past few quarters has been AWS (Amazon Web Services), the largest cloud platform in the world. That platform lends out storage space, computing power, and software development platforms to massive customers like Netflix (NASDAQ: NFLX), NASA, and the CDC.

Last quarter, AWS revenue rose 47% annually and accounted for 8% of Amazon's top line. However, AWS' operating income rose 60% and brought in 52% of the company's operating profits thanks to its higher margins. That profit growth gives Amazon more freedom to expand its lower-margin marketplace businesses.

3. The Prime ecosystem is still expanding

A key part of that marketplace push is Prime, Amazon's prisoner-taking membership ecosystem which offers discounts, free shipping, e-books, streaming video, cloud storage, and other perks. The expansion of that ecosystem puts a lot of pressure on brick-and-mortar rivals like Wal-Martand streaming video players like Netflix.

Last October, eMarketer estimated that Amazon Video was adding users at a faster ratethan both YouTube and Netflix. And last June, research firm CIRP estimated that Amazon's Prime customer base in the U.S. grew19 million year-over-year to 63 million -- indicating that Prime shoppers outnumbered non-Prime shoppers. The study also found that Prime members spent about $1,200 annually on the site, compared to just $500 for non-members.

4. Its home automation ecosystem will grow

Amazon is also expanding its Prime ecosystem into homes with cheap connected consumer electronic devices like the Kindle tablets, Fire TV set-top boxes, Echo family of smart speakers, Dash buttons, and DRS-enabled appliances.

Image source: Amazon.

Amazon has also taken steps to connect its Alexa voice assistant to other functions in smart homes and connected cars. Smart light bulbs, fans, thermostats, and locks already sync to Alexa and Echo. Amazon has also worked with Ford to sync newer vehicles to Alexa so users can control smart home devices from their cars or access their vehicles from inside the home. All these services help Amazon gather more data about its users' habits and reduces the friction in online purchases -- which gradually increases customer dependence on its services.

5. International growth opportunities

Amazon's international marketplace business generated just a third of its revenues last quarter. That's why the company is expanding into new overseas markets like India, where it invested billions to challenge market leader Flipkart; and China, where it remains far behind market leaders Tmall and JD.com (NASDAQ: JD).

Like Netflix, Amazon is launching localized original content for Amazon Video in overseas markets. These new streaming shows, like Kamen Rider Amazons and an Ultraman Orb spinoff in Japan, help the company localize its brand and expand its Prime ecosystem.

6. Logistics costs will decline

Lastly, Amazon's closely watched logistics expenses will eventually fall with increased automation. We've already seen Amazon make progress herewith thousands of warehouse robots andits own fleet of cargo planes, and its upcoming Prime Air drone deliveries could greatly reduce delivery costs further.

Some skeptics might believe that widespread drone deliveries might not be feasible, but JD.com already launched "thousands" ofdelivery drones across rural Chinalast November. The company stated that the test run, which was conducted during the massive Singles Day rush, went "smoothly."

The key takeaway

It's highly unlikely that Amazon can ever repeat its near 55,000% post-IPO rally. However, that doesn't mean that it's too late to get in on this millionaire-maker stock. I personally bought my shares when Amazon was in the low $600s, when many analysts called the stock expensive. The skeptics are still saying the same thing about the stock now, in the mid $800s, but I believe that it still has plenty of room to run.

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Leo Sun owns shares of Amazon and Ford. The Motley Fool owns shares of and recommends Amazon, Ford, and Netflix. The Motley Fool has a disclosure policy.