AMZN
⭐ Amazon exemplifies a high-quality company, characterized by super solid balance sheets, consistent cash flow generation, and healthy profit margins, providing financial flexibility.
🛡️ The company possesses durable competitive advantages, making it difficult for competitors to surpass and contributing to its resilience during economic headwinds.
🔄 While Amazon often trades at higher valuation multiples due to rapid growth, these can contract in recessions but tend to expand again during recovery, offering potential long-term opportunities, especially via DCA.
@bernardodegarcia:
“During periods of uncertainty, it’s also a good moment to focus on quality. Not all companies are equally prepared to face economic headwinds. Take Amazon, for example. These high-quality companies usually have super solid balance sheets, meaning they aren’t over-leveraged and have enough cash to endure, say, several quarters without generating profit because they swim in abundance. They typically generate consistent cash flows and have very healthy profit margins, giving them a lot of flexibility. When a crisis hits, they can lower prices to keep the business running, and when the crisis passes, they raise prices again or improve contracts. Often, they also possess durable competitive advantages, making them hard for competitors to beat. If we invest looking for companies with robust financial metrics, like a good return on invested capital (ROIC)… these quality companies tend to be more resilient and recover better when market conditions improve. It’s also true that companies like Amazon usually trade at higher multiples because they grow very fast, so the market assigns them higher valuations. When a recession comes, these valuations contract. So, these stocks fall not only due to multiple contraction but also because there’s a slowdown. Instead of generating $2 per quarter, they might generate $1.75. They get this double whammy. But when they emerge from the recession, because we always emerge from recessions, they also get a double boost upwards: from $1.75, they go back to $2 and then perhaps $2.50, and the multiples expand again. So, applying DCA to these types of quality businesses is, again, a very good idea.”
Watch the exact part of the video where @bernardodegarcia talks about Amazon here:
Watch the video on YouTube
Read more articles analyzing Amazon (AMZN) at the provided link. AMZN stock.
