Amazon Inc. (AMZN) has long been considered a growth stock. In 2021, it is one of the largest companies in the world and has been for some time. As of Sept. 24, 2021, Amazon ranks fourth among U.S. stocks in terms of its market capitalization.
Amazon’s stock has historically traded at a high price-to-earnings (P/E) ratio. Between June 2020 and September 2021, the stock’s P/E has ranged from around 58 to 106.3 Despite the company’s size, earnings per share (EPS) growth estimates for 2022 is over 67.
When a company is expected to grow, investors remain willing to invest (even at a high P/E ratio). This is because several years down the road the current stock price may look cheap in hindsight. The risk is that growth doesn’t continue as expected. Investors have paid a high price expecting one thing, and not getting it. In such cases, a growth stock’s price can fall dramatically.