With its immense $2.7 trillion market cap, Amazon (AMZN +3.47%) is unquestionably one of the most successful companies the world has ever seen. Its leading position in multiple industries highlights a relentless focus on catering to its customers’ needs. Investors have reaped the rewards.
In the past decade, shares have generated a return of 690% (as of April 21). After learning about this performance, investors want to figure out what the future will bring.
Could Amazon be the one consumer tech enterprise that turns $50,000 into $1 million by 2036? Here’s what investors need to know about this “Magnificent Seven” stock‘s potential to compound capital.
Image source: The Motley Fool.
Assessing the probability of a 20-fold gain in 10 years
For Amazon’s share price to rocket higher by 20-fold, growing $50,000 into $1 million in 10 years, it would need to rise at a compound annual rate of 35%. By anyone’s standards, this is a jaw-dropping return that would make you one of the world’s elite investors.
To be clear, this isn’t a likely outcome. At its current size, Amazon isn’t going to put up that kind of performance. In the past, its stock rose about 20-fold (or 1,900%) since December 2012, a period of more than 13 years. This was possible because Amazon was starting from a much smaller base.
While the stock isn’t expensive, the valuation isn’t exactly in bargain territory, either. Shares trade at a price-to-operating cash flow ratio of 19.3. Assume this multiple is the same in 2036.
Then, profit growth will be the key catalyst driving investor returns. In the past decade, the company’s operating cash flow increased at a yearly clip of 27.9%. I’d expect this figure to decelerate. Assuming a still-wonderful 15% annualized rate, Amazon’s operating cash flow and stock price will rise by 300% between now and 2036.
This means that investors will be able to turn a $50,000 starting sum into $200,000 based on this realistic forecast.
Today’s Change
(3.47%) $8.85
Current Price
$263.93
Key Data Points
Market Cap
$2.8T
Day’s Range
$257.69 – $264.40
52wk Range
$178.85 – $264.50
Volume
2.4M
Avg Vol
52M
Gross Margin
50.29%
Investors can take matters into their own hands
Just because Amazon shares aren’t going to soar 20-fold in 10 years, it doesn’t mean this isn’t a business worthy of investment consideration. Amazon boasts multiple competitive advantages and a dominant standing in many growth markets, like e-commerce, cloud computing, artificial intelligence, and digital advertising.
A million-dollar outcome is still possible, thanks to the investing strategy known as dollar-cost averaging. This involves buying more shares at regular intervals, regardless of price.
In addition to an up-front $50,000 allocation, investors who are able to incrementally purchase $3,100 worth of Amazon stock every month would reach a $1 million portfolio balance in a decade based on the projected 15% yearly growth rate.
