Amazon (NASDAQ:AMZN) has been a winning stock for most of its public existence, barring the normal ebbs and flows of any asset. The company tends to achieve its goals and regularly finds new activities to dominate, generating new sources of income. Currently, the company is focused on generative artificial intelligence (AI), which is a high-margin business expected to increase profits and the bottom line.
This is important because if you take a look at its financial reports and stock price, you will notice that Amazon’s stock price closely tracks changes in its stock. net income.
Amazon management likes to focus on operating profitand it highlights this measure at the beginning of each of its quarterly reports. This is because operating profit takes into account tax-related expenses and other items that do not have a strong impact on the company’s operations.
This might be the right thing to do financially. In fact, Warren Buffett, the legend himself, who also owns a stake in Amazon, called the net income metric “worse than useless.” Instead, he focuses on operating income, which he says gives a more complete picture of a company’s financial situation.
However, not all investors are as wise as Buffett and, in any case, the merit of focusing on operating income rather than the bottom line can be debated. The choice also impacts valuation metrics like the P/E ratio, so whether or not net income is the best bottom line metric to track matters to the market. And Amazon’s stock price tracks net income much more closely than revenue or operating profit.
Net income is included later in the financial statements, but investors should find and review it. In the third quarter, net profit increased from $9.9 billion in 2023 to $15.3 billion in 2024. It should not be considered in isolation, but as part of a whole.
Before buying stocks on Amazon, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Amazon was not one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $816,504!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
