Amazon has had an impressive run over the past six months as its shares have beaten the S&P 500 by 8.2%. The stock now trades at $239.82, marking a 10.8% gain. This performance may have investors wondering how to approach the situation.

Is now still a good time to buy AMZN? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Does AMZN Stock Spark Debate?

Founded by Jeff Bezos after quitting his stock-picking job at D.E. Shaw, Amazon (NASDAQ: AMZN) is the world’s largest online retailer and provider of cloud computing services.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Amazon shows that fast growth and massive scale can coexist despite conventional wisdom. The company’s revenue base of $386.1 billion five years ago has increased to $716.9 billion in the last year, translating into an excellent 13.2% annualized growth rate.

Over the same period, Amazon’s big tech peers Alphabet, Microsoft, and Apple put up annualized growth rates of 17.2%, 14.8%, and 8.2%, respectively.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it shows whether a company’s growth is profitable. It also explains how taxes and interest expenses affect the bottom line.

Amazon’s EPS grew at 28% compounded annual growth rate over the last five years, higher than its 13.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Mediocre Free Cash Flow Margin Limits Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills or invest for the future.

Amazon has shown poor cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, below what we’d expect for a consumer internet business.

Final Judgment

Amazon’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 31.2× forward price-to-earnings (or $239.82 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.

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