This year's market rally has had its fair share of winners, many of which are smaller cap companies relatively unknown to the public. However, one well-known company, Amazon (Nasdaq:AMZN), is on track to have one of its best years since the days of the internet boom. So far this year, shares in Amazon are up over 160%.
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An Excellent Business
Amazon's appeal today and in the future is nothing new. What started off as an online seller of books has morphed into a company that now sells everything from light bulbs to watches to tools. While books still remain the company's bread-and-butter business, Amazon is increasingly becoming a hub for buying a range of other products. As long as books are around, Amazon will always be known as the place to go. Despite the recent news that Wal-Mart (NYSE:WMT) is now selling books online at prices to compete with Amazon, the company has a very loyal customer base. It's easy to shop Amazon; the customer service is excellent, and the prices are unbeatable. Just as Wal-Mart has hurt its competition, Amazon has become a very tough competitor for book sellers Borders (NYSE:BGP) and Barnes and Noble (NYSE:BKS). (For more, see Competitive Advantage Counts.)
Amazon also continues to stay ahead of the pack. Its e-reader, the Kindle, is at the forefront of electronic books, helping the company secure a significant position in this rapidly growing market. In short, the market's love for Amazon stock is due to this constant innovation and growth. In the last three years, net income has increased by an average of nearly 50% - and it's still growing!
A Pricey Stock
Unfortunately, the wonderful ride shares have had in 2009 may not continue into 2010. Heading into December, shares are trading at nearly 80 times earnings and 52 times next year's earnings. A business like Amazon probably deserves to trade at a much higher multiple than most companies. Even today, the company likely has years of 20% plus top and bottom line growth. Online shopping continues to gain more and more acceptance and Amazon is one of the easiest and friendliest places to shop online. But at current valuations, Mr. Market is counting on performance numbers that will continue to blow away expectations - expectations that are already pricing in fantastic future growth. Even Google (Nasdaq:GOOG) has shown that it can't double profits every couple of years or so. (For more, see Choosing The Winners In The Click-And-Mortar Game.)
Amazon is an excellent retailer, and its innovation really shone in 2009. Unless the stock suffers a heavy correction, 2009 may turn out to be one the best years to have owned shares. Whether this company's great run continues in 2010 remains to be seen, but rest assured it can't go on forever.
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