Motley Fool: This giant’s getting bigger

You may think of Amazon.com (Nasdaq: AMZN) as simply a giant online retailer. That it is, but it’s much, much more. Better still, its stock still has plenty of room to grow.

Amazon’s many growth drivers include not just its e-commerce business, but also Amazon Web Services, a cloud computing service that leads in market share and that grew by 30% from 2019 to 2020. Amazon is also reaping a lot of money from its advertising business.

Despite its already dominant position in e-commerce channel advertising, Amazon grew its overall ad business about 52% in 2020 – faster than its online sales growth. In the first quarter of 2021, Amazon’s “Other” sales, which mostly encompass advertising, grew a whopping 77% year over year.

Amazon has plenty of other irons in its fire. Its Prime program now includes some 200 million members worldwide who are taking advantage of a broadening range of benefits, from Prime Video to free grocery deliveries. The company has been expanding into the grocery business, too, with its Amazon Fresh locations; it hopes to take a big bite out of the enormous health care sector as well.

Consider Amazon shares for your long-term portfolio. (The Motley Fool owns shares of and has recommended Amazon.com stock and options. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors.)

Ask the Fool

Q: When I’m looking for companies to invest in, are companies with the highest earnings per share (EPS) the best candidates? – P.N., LaCrosse, Wisconsin

A: Not at all. It’s always preferable for a company to have positive EPS instead of losses, but beyond that, an EPS number doesn’t mean much by itself.

Imagine that Library Supply Co. (ticker: SHHHH) has total net income of $100 million. If it has 50 million shares of stock outstanding, then its EPS will be $2 ($100 million divided by 50 million). If it has 100 million shares, its EPS will be $1.

When companies issue more shares of stock to raise money, that “dilutes” the value of existing shares and depresses EPS. If Library Supply had $100 million in earnings and 125 million shares, for example, its EPS would be $0.80. Conversely, if a company buys back shares of its stock, reducing its share count, it can boost EPS.

Now imagine two equally terrific companies, each with the same net income. If one company has half as many shares as the other, its EPS will be twice as high. There’s no ideal number of shares for a company to have; some have millions, while others have billions.

When evaluating a company, see if its EPS has been rising over time – and look at other numbers, too, such as profit margins, and cash and debt levels.

Q: What are “trade dates” and “settlement dates”? – J.W., Canton, Ohio

A: The trade date is the date on which your order to buy or sell a security is executed. (It’s also the date that matters for tax purposes.)

The settlement date is when the cash or securities from the transaction show up in your account.

My dumbest investment

My dumbest investments have always been when I sold stocks too soon. – E.M., online

The Fool responds: It’s very common for investors to jump into a stock with great enthusiasm, hoping that big gains are around the corner, and then to sell if it doesn’t meet expectations quickly. Other times, investors sell after a modest gain and miss out on bigger gains. It’s easy to lose sight of the fact that great long-term performers will double, triple or quadruple your money over time, with the best of them increasing your original investment tenfold or even twentyfold or thirtyfold.

Consider Netflix. Over the past 19 years, its stock has surged over 40,000%. Imagine that you bought some shares at a (split-adjusted) price of $3 in 2008 and sold them in mid-2009 for $6: You’d have been delighted to have doubled your money. Looking back now, though, with the shares recently trading near $495, you’d be kicking yourself for missing out on so much more growth.

Or what if you bought into Netflix early in 2011, only to learn of the company’s plan to hike prices and spin off its DVD-rental business, in order to focus on streaming video? So many investors lost faith then that the stock price crashed more than 75%. That would have been a tough decline to ride out, but those who did so have profited handsomely.