Could This Undervalued Stock Turn You Into a Millionaire?

Could This Undervalued Stock Make You a Millionaire One Day?

However, grasping these ratios is critical to understanding how expensive a stock truly is. Similarly, simply checking the share price doesn't reveal that information -- a stock trading at $2,000 could be far "cheaper" than a stock that trades at $20, depending on the underlying financial condition of the two stocks. Amazon's current valuation gives investors a tremendous opportunity It might seem impossible, but Amazon's stock is currently making new all-time highs while also sporting a very low valuation. So, how is that possible? In short, it's happening because Amazon is operating at its most efficient level ever -- thanks to massive capital investments. The company ramped up capital expenditures in response to the COVID pandemic, expanding and improving its logistics network that supports its massive e-commerce business. As it did so, the company's free cash flow dried up, as cash was funneled into construction projects, equipment, and machinery. However, after the end of the pandemic, Amazon scaled back some projects and ended others entirely, resulting in a significant drop in capital expenditures spending and a surge in free cash flow. Accordingly, Amazon's price-to-free-cash-flow -- a critical stock valuation metric for a mature company like Amazon -- has decreased considerably. Why Amazon can keep growing and produce more millionaires Make no mistake: Valuation is an important metric -- but it isn't everything. For an investment to have staying power, it's important to understand what a stock's future prospects are. Amazon's potential for growth is not limited to its e-commerce division. The company operates a diverse range of business lines, each with its own growth potential. Amazon Web Services (AWS), the company's cloud services division, is a standout example. It now generates over $100 billion in annual revenue, a figure that surpasses most other companies. In fact, if AWS were a stand-alone entity, its annual revenue would be on par with Bank of America, Tesla, or PepsiCo. What's more, AWS is not just a revenue generator, it's a growth engine. As organizations increase their cloud spending and the artificial intelligence (AI) revolution gains momentum, AWS is growing at an impressive rate. In the most recent quarter, AWS saw a 17% revenue growth, outpacing Amazon's overall revenue growth of 13%. To sum up, Amazon's operations are running more smoothly than ever -- thanks to huge capital investments made during the pandemic. Moreover, the company's chief growth engine, AWS, shows no signs of stopping. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Amazon wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jake Lerch has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Amazon, Bank of America, and Tesla. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Could This Undervalued Stock Make You a Millionaire One Day? | The Motley Fool

However, grasping these ratios is critical to understanding how expensive a stock truly is. Similarly, simply checking the share price doesn't reveal that information -- a stock trading at $2,000 could be far "cheaper" than a stock that trades at $20, depending on the underlying financial condition of the two stocks. Accordingly, let's delve into why I think investors should consider Amazon (AMZN -0.29%) based on its valuation. It might seem impossible, but Amazon's stock is currently making new all-time highs while also sporting a very low valuation. So, how is that possible? In short, it's happening because Amazon is operating at its most efficient level ever -- thanks to massive capital investments. The company ramped up capital expenditures in response to the COVID pandemic, expanding and improving its logistics network that supports its massive e-commerce business. As it did so, the company's free cash flow dried up, as cash was funneled into construction projects, equipment, and machinery. However, after the end of the pandemic, Amazon scaled back some projects and ended others entirely, resulting in a significant drop in capital expenditures spending and a surge in free cash flow. Accordingly, Amazon's price-to-free-cash-flow -- a critical stock valuation metric for a mature company like Amazon -- has decreased considerably. Amazon's potential for growth is not limited to its e-commerce division. The company operates a diverse range of business lines, each with its own growth potential. Amazon Web Services (AWS), the company's cloud services division, is a standout example. It now generates over $100 billion in annual revenue, a figure that surpasses most other companies. In fact, if AWS were a stand-alone entity, its annual revenue would be on par with Bank of America, Tesla, or PepsiCo. What's more, AWS is not just a revenue generator, it's a growth engine. As organizations increase their cloud spending and the artificial intelligence (AI) revolution gains momentum, AWS is growing at an impressive rate. In the most recent quarter, AWS saw a 17% revenue growth, outpacing Amazon's overall revenue growth of 13%. To sum up, Amazon's operations are running more smoothly than ever -- thanks to huge capital investments made during the pandemic. Moreover, the company's chief growth engine, AWS, shows no signs of stopping.