Here’s a fun thought experiment: how much would you have been willing to pay for a share of Apple stock 10 years ago, in January 2007? They’d released the iPod five years before, and the stock had tripled in the last two years, trading (split adjusted) at $11. With so much growth in the last two years, is it worth investing?
Well – if you wanted to maintain 20% annual returns over the next decade, you’d be willing to pay up to $19/share. At $11, it was a huge bargain. Even if it didn’t feel that way two years later, when the stock was trading for just $12.88.
I think the decision to invest (or not) in a stock that has just produced incredible returns is one of the most difficult choices.
In 2007, comparatively, Amazon was a steal. For the same 20% return, you’d be willing to pay $136/share, while the stock was selling for only $37/share. Amazon was the better investment, and has consistently performed better as an investment than Apple–even though Apple has the most successful single product ever, in the iPhone.
Here’s the thing: Amazon stock is currently (as of January 2017) on an incredible growth run. It’s produced amazing returns and seems to be growing faster than the market: 47% gain vs. 24% for the SP500 this year.
The question is whether or not Amazon the business is performing even better. They’ve continued their growth in ecommerce, added an incredible ubiquotous business in AWS, and they’re positioned themselves to be the operating system of the smarthome with their development of Alexa. They’ve grown revenue at 20% annually for over a decade.
Tough to tell what the future will hold.