Question

In: Finance

Step 1: Pick stock you would like to invest in for the long-term (10 or more...

Step 1: Pick stock you would like to invest in for the long-term (10 or more years)

Step 2: What is the CAGR (compound annual growth rate) for this stock over the past 10 years

Step 3: Does this stock pay dividends? If so, what is the dividend history over the past 10 years

Step 4: Write a paragraph about what this company does, how it makes money, including main products/services/users/etc, and why this is a good investment. Defend your "long" position, both quantitatively and qualitatively.

Please show your work.

Expert Solution

Step 1 :

The company is Amazon

Step 2 :

Adjusted closing price of stock today is $1757.51

Adjusted closing price of stock 10 years ago was $135.91

price today = price 10 years ago * (1 + CAGR)¹⁰

1757.51 = 135.91 * (1 + CAGR)¹⁰

CAGR = (1757.51 / 135.91)^1/10 - 1

CAGR = 29.17%

Step 3 :

No, this stock does not pay dividends

Step 4 :

This company has two main lines of business : Ecommerce and Amazon Web Services (AWS).

The Ecommerce division sells a wide range of products online. It operates warehouses, sources products from suppliers and ships them to customers. It makes money on the selling margins, shipping fee and Prime membership.

The AWS division maintains and operates servers to provide cloud computing services to other businesses. It makes money by charging usage charges for the services.

This is a good investment because Amazon has an advantage over tradition brick-and mortar retailers due to its headstart in the e-commerce space and its scale. It has a more than 50% share in the cloud computing business. The company is expanding in fast-growing markets such as India and South-East Asia. The company pays no dividends, but its CAGR of 29% is much higher than the historical annual return of the S&P 500.

jeff jeffy answered 5 hours ago

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