Some companies are so strong and have such incredibly long growth paths ahead of them that you may never have to sell the stock. The advantage of this approach is that the shares can increase in value without having to pay capital gains tax.
This is why Amazon (NASDAQ: AMZN) And Shopify (NYSE: STORE) are two quality stocks to buy today and hold for potentially years of compounded returns.
1. Amazon
Online shopping may seem common these days, but it only represented 15% of total US retail sales in the first quarter of 2024. That relatively small figure underlines the enormous growth trajectory for leader Amazon, which continues to capture a growing share of sales. e-commerce market.
Amazon is a large company with multiple revenue streams. Although non-retail services such as cloud computing and advertising have been two of the fastest growing businesses in recent years, online store revenues still represent more than a third of total sales and are still gaining market share. JPMorgan expects Amazon’s share of US e-commerce to reach 44.5% this year, surpassing the current leader, Walmart.
The reason this is significant is that Amazon’s online retail business is becoming more efficient at turning revenue into more profit. That’s why the stock is up 48% over the past year. In the first quarter, the company’s operating profit rose 221% year-over-year due to higher margins from online sales. Reducing retail costs is an ongoing process, so investors should expect more robust earnings growth in the coming year.
As management shortens the time inventory sits in fulfillment centers and accelerates delivery times, it will lead to more frequent shopping behavior, which could boost sales and profits. The average Wall Street analyst expects Amazon’s earnings per share to grow 23% annually over the next few years. Assuming the stock continues to trade at the same valuation, it could rise at about the same pace in the coming years.
2. Shopify
According to Statista, the global e-commerce market is estimated at $4.1 trillion, but Amazon won’t capture 100% of that market. That means there are potentially millions of businesses around the world that could turn to Shopify to help grow their online retail presence.
Shopify generates about a quarter of its revenue from subscriptions, but the majority of its revenue comes from service fees for merchant services, including payment processing. This means that Shopify can grow by adding more sellers, but also by helping those sellers grow their sales.
Shopify is essentially a business partner to its commercial customers. It continues to bring more tools to the platform, increasing the company’s competitive advantage.
Over the past two years, Shopify has launched more than 400 new features. It’s no surprise that the company’s merchant services revenue is growing 20% year over year to $1.4 billion in the first quarter. There continues to be growing adoption of Shopify Payments, the primary driver of merchant services revenue.
Shopify’s growth translates into growing free cash flow that management can reinvest in more innovation for its enterprise customers. Since exiting its logistics business, the company has seen its free cash flow rise sharply over the past twelve months to above $1 billion. Shopify’s innovation and growing free cash flow are fueling a new bull run for the stock.
Should You Invest $1,000 in Amazon Now?
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, JPMorgan Chase, Shopify and Walmart. The Motley Fool has a disclosure policy.
2 Growth Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
