Amazon.com is a great company, however, in South Africa it seems really difficult to get a hold of some of their shares. I got fed up with using CFD’s so I decided to find a way to buy actual Amazon.com Inc shares. And I succeeded!
Here’s how I buy Amazon.com Inc shares in South Africa, WITHOUT using CFDs.
- Open an international trading account. I use Firstrade, I wrote a full guide that shows you how you can open an account as a South African citizen step-by-step.
- Find the stock. Once your account has been approved and funded, log in to your Firstrade account and search for the Amazon.com ticker, (AMZN.) Do this by using the simple search feature on the trading platform.
- Buy the stock. Simply place your buy order, and the transaction should go through immediately if it’s during trading hours.
You’ll now be the proud owner of some Amazon.com Inc. stock and you’ll be entitled to all shareholder benefits. But how much should you be paying per share to make a decent profit? Is the stock overvalued or oversold? Keep reading to find out.
How Much Should You Pay For Amazon.com Inc Stock?
It should come to no surprise that a stock won’t keep rising forever, and believe it or not, that includes Amazon.com. If you buy at the peak, sooner or later the price will correct itself revealing the true value of the stock and you could get burned. Trading a stock lower than it’s true value is known as value investing, (google Warren Buffett’s or Charlie Munger’s trading strategies if you would like to learn how to value invest.)
So what is the true value of Amazon.com? We can’t advise on an exact number, however here are a few signals you can use.
Has the stock been hyped up? Look at the stocks P/E ration overtime to find this out. The P/E ratio number comes from dividing the price of the stock by the earnings per share. In English, it’s a quick way to see how much a single stock is earning against the ticker price and how long it will take to earn back your investment.
Here’s the calculation: In 2019, Amazon had annual earnings per share of around R400 and is currently being sold on the stock market for around R26,000 per stock. Therefore, P/E ratio = 26000/400 = 20. So your P/E ratio in this case, is 20.
The general rule of thumb is if a stock has a P/E ratio of 65.0, for every X amount you invest it will take you 65 years to double your initial investment. The more hyped up the investment, the further away the price will be from the earnings, which means the longer it will take to make back your initial investment.
Here’s a quick table that shows how the price of a stock affects how long it will take you to double your money:
|Stock Price:||Earnings per share:||P/E Ratio:||Years to double investment:|
As I’m here typing this, Amazon.com Inc. has a P/E ratio of 116.40. Keeping our rule of thumb in mind, if you invest R5000 right now for example, it will take you 116 years to make another R5000. This is obviously just a rule of thumb, you can’t just look at the P/E ratio alone when investing in a stock.
However Amazon.com has been extremely hyped lately, and the whole stock market in my opinion is overvalued, because of these main reasons you won’t find Amazon stock in my portfolio at-least right now. But you can be sure that I’m keeping a very close eye on them.
Amazon.com Inc CFD’s VS Shares?
During your research you would have noticed that there are plenty of online trading platforms in South Africa that push Amazon CFDs with very few, (or none,) actually offering Amazon.com stock.
So what are CFDs?
A CFD, (contract for difference,) is nothing more than a contract that follows the price of the stock you chose. When you buy an Amazon CFD, instead of owning the actual stock, you’ll just own an agreement between yourself and a CFD broker.
That being said, at face value the platform will look like you’re buying normal stock, and you still make money the same way—generally by buying low, and selling high. There are just a few important differences you need to be aware of.
Why do CFD’s even exist and who uses them?
There are a few reasons why CFDs could be a good option for some traders.
- The first reason is CFDs can be traded a lot quicker because you don’t need to buy the stock through a stockbroker, (which is also why Amazon.com Inc. CFDs are so widely available in South Africa.) However that only used to be true years ago, buying stocks has become so much easier since everything is done online and today I would argue that you could buy and sell stocks and CFDs at the same speed.
- Another reason is some traders might have no interest in owning the actual stock, they’re more interested in making money on the price fluctuations. These CFD traders are generally short term traders that usually only hold a trade for a few days, which is why they don’t mind if they miss out on shareholder benefits such as dividends.
- Traders also have the option of leveraging CFD trades which makes it perfect for high-risk traders. Keep in mind though, this makes it a very risky strategy for beginners.
When should you stay away from CFDs?
- As a CFD holder, you’ll miss out on the stock’s shareholder benefits such as dividends. So if you would like to own a company for their dividends, I recommend buying shares instead.
- If you love a particular company and you want to own a piece of it then buy the stock instead. Remember, CFDs only track the price, you don’t actually own any of the stock.
Can South African’s Legally Own Amazon.com Shares?
Fortunately for us there are no laws in the United States that go against owning American shares, that being said, it’s perfectly legal to buy and own all American stocks as a South African citizen, even Amazon.com Inc.!
Not only that, but there’s also no extra requirements needed by the U.S government when trading stocks as a foreigner when compared to a U.S citizen, shown in this article published by Investopedia.
You don’t need any ties in America, and you don’t need to be an American citizen or resident. All you need to do is find an American based platform that allows South African residents.