Overvalued or not, Amazon.com stock value has surged

The main reason many have passed up shares of Amazon.com (Nasdaq: AMZN) is that they think the shares are overvalued. The stock has seemed overvalued for many years, though – during which time it has surged in value.

Amazon is rapidly consolidating retail market share, and it surpassed Wal-Mart last year as the largest U.S. retailer by market capitalization. Since June 2009, the official end to the Great Recession, Amazon has grown its market capitalization more than tenfold, while most other retailers have failed to match the S&P 500’s performance. Better still, the shift toward e-commerce is only in the initial stages: Last quarter, e-commerce accounted for only 8.4 percent of all U.S. retail sales, and that’s estimated to top 14 percent by 2020.

Many have grumbled that Amazon has struggled with profitability. However, the company has put together a string of profitable quarters on the back of its Amazon Web Services (AWS) division. Throughout the first nine months of fiscal 2016, AWS provided roughly 9.4 percent of Amazon’s total revenue – and 42.4 percent of its operating income. Plus, AWS is growing at a 59 percent year-over-year clip.

With its market value recently topping $370 billion, Amazon is huge and growing. Risk-tolerant long-term investors may want to add some shares of the company to their shopping cart. (The Motley Fool has recommended and owns shares of Amazon.com.)

Ask the fool

Q: What is bitcoin? – T.F., Flint, Michigan

A: Bitcoin, which debuted in 2009, is a digital or virtual currency. It exists online and permits payments between parties without a middleman, such as a bank. It’s not issued by any government, either. It’s a decentralized electronic payment system, not managed by any single entity the way Mastercard, Visa and PayPal oversee their respective payment networks.

To use bitcoin, you need to buy bitcoins on one of many exchanges and store them in a digital wallet app. Many retailers like accepting bitcoin because they’re not charged a processing fee, as they are with credit cards.

On the other hand, there is relatively little regulation of bitcoins, and the system is vulnerable to hacking. The value of a bitcoin is very volatile, too. A bitcoin went for about $13 in early 2013, topped $1,000 later in the year and dropped by 23 percent in a single day earlier this month, to below $900.

Q: How can I know what a company’s intrinsic value is so that I can know when to sell it? – E.B., Dothan, Alabama

A: A stock’s current price reflects its market value, while its intrinsic value suggests what it’s really worth. You can only estimate intrinsic value, which is based on factors such as profit margins, revenue growth and competitive advantages. Even among skilled professional stock analysts, estimates of a stock’s intrinsic value will vary.

It makes sense to sell a stock when it is above what you think it’s worth – though if the company is strong and growing, hanging on can be the smarter move. To see a list of stocks our analysts believe are undervalued, try our “Motley Fool Inside Value” newsletter for free at fool.com/shop/newsletters.

My dumbest investment

I’m feeling the pain from my purchase of 3-D printing stock Stratasys. I bought into Stratasys partly because 3-D printing is cool. I really thought it would’ve taken off more. I guess I am more of a geek for that kind of stuff than most.

I still have the holding, and I don’t know what I am going to do. Thankfully, it has been going back up lately, so I am doing the bad thing of hoping it goes back into the black or at least becomes less of a loss, so I can feel less pain when I sell it for the write-off. – F.D., online

The Fool responds: As you probably know, Stratasys shares fell further, dropping some 40 percent since you wrote to us and giving you an even bigger potential tax loss. It’s not a bad company, and it may well be a great performer over the coming years – but 3-D printing is still a relatively new and developing business. It’s not yet clear how widespread its use will be, especially among consumers as opposed to industry. It’s also not clear which 3-D printing companies will end up on top.

A key error you made was waiting for a rebound when you no longer had great faith in the company. It would have been better to sell and move the money into a stock you had more confidence in.