Some may assume Amazon is overpriced, given its 646% share-price appreciation over the past five years, the third-best performance of S&P 500 members, and because it sports a stratospheric price-to-earnings ratio of more than 100 based on its current share price of about $232.
But patient investors can expect to continue to be rewarded because of its leading role in e-commerce, an industry that's in its infancy on a worldwide basis. Morningstar calls Amazon "the most disruptive force in retail in recent years" and that should be taken as a compliment.
Those are the same words used to describe Apple (AAPL), the computer company that branched out to redefine the world of gadgets with its iPod music player, iPhone smartphone and iPad tablet. Much like Apple, Amazon has felt its own strength by putting booksellers out of business and becoming the go-to place for shoppers who want to buy just about anything.Amazon has increased its active customer base to 137 million users as of April, which represents a four-year compound annual growth rate of 20%, Morningstar said. There's no reason to think that sort of growth can't continue because the company is adept at coming up with new ways to grab customers for a growing array of products and services. And it's adding more third-party sellers eager to gain new customers via the link on Amazon. Aggressive and fearless is how best to describe the company's approach to business since its 1995 online launch as the "Earth's biggest bookstore" by founder and CEO Jeff Bezos. After crushing brick-and-mortar book sellers, such as Borders, it moved on to squash electronics and music retailers such as Circuit City. Now it's threatening Best Buy (BBY) and many other types of retailers, including the mighty Wal-Mart (WMT). Rivals are scrambling to find ways to meet its competition. In one of its latest initiatives, Amazon is taking on the venerable Apple and online-video merchant Netflix (NFLX) with its Kindle Fire, a tablet computer selling for a mere $199 upon release Nov. 15. Apple's iPad tablet is $499. And that comes soon after the company rolled out Amazon Premium, a $79 annual package that offers free two-day shipping on any item ordered from its Web site. They will also get access to its online digital media streaming library, something that Apple offers, as well as to their TV, something that Netflix offers.