We all know that Amazon.com Inc (NASDAQ: AMZN) is one of the largest and most successful companies in the world. Its founder and former CEO, Jeff Bezos, is a household name, and the company's services are wildly popular in Australia, as well as around the world. As such, it's also arguably common knowledge that Amazon stock has been a long-term winner for any investor who has held it for any significant length of time.
Most people know Amazon for its sophisticated online store featuring fast delivery, as well as its Prime membership program, and, more recently, its streaming service.
But those businesses, while important, only make up part of this behemoth's revenue streams. Perhaps its most successful segment operates behind the scenes. It is none other than Amazon Web Services (AWS), a service that facilitates back-end internet operations. It is used by clients ranging from Netflix and Coca-Cola to Apple and LinkedIn.
But how has this success translated into the company's share price? Well, let's take a look at Amazon stock over the past five years to find out.
So, five years ago, back in early December 2020, Amazon stock was going for just over US$3,115 a share. That's about US$158 on a post-stock split basis – remember, Amazon underwent a 20-for-1 stock split back in mid-2022.
As it stands today, its shares last traded at US$233.22 each, the price recorded on Saturday morning (our time) at the end of the short trading day over in the US.
This means that investors have enjoyed a gain of about 47.5% from the Amazon stock price itself since December 2020. That works out to be a yearly rate of return of approximately 8.1% per annum over the five years.
Why has Amazon stock been a market laggard?
Now, Amazon doesn't pay any dividends at the current time. In fact, the company has never paid out a dividend. As such, those capital gains are the only returns investors would have bagged from their Amazon stock. However, for Australian investors, currency movements would have added about 2.5% per annum to their total returns.
If an investor bought US$5,000 worth of Amazon stock five years ago this week, this means they would have been able to pick up 31.6 shares at the time. Today, those 31.6 shares would have a value of US$7,374.30.
Many investors might be startled to see such a low rate of return from Amazon. A member of the 'Magnificent 7', no less. You would have been far better off investing in a generic S&P 500 Index (SP: .INX) fund.
It's not as though this company isn't growing through. As we reported last month, the company's latest quarterly report showed Amazon's sales increasing 13% year on year, while its AWS revenue surged 20%.
As such, we can conclude that Amazon stock's sluggish performance since late 2020 is almost entirely due to price-to-earnings (P/E) ratio compression. This company's five-year earnings multiple average stands at just over 58. Yet the company trades at a far lower 32.95 today.
Thus, investors might conclude that the company is looking relatively cheap right now, despite being just under 10% away from its all-time high of US$258.60 a share.
