Can Amazon Produce 19.2% Growth over the Next 12-Month Period?

Amazon.Com (AMZN) stock has been en fuego since releasing its third quarter earnings on October 22. Before the announcement, the company’s stock price implied 12.6% sales growth. Then the company reported that in the third quarter it produced 27.8% year-over-year sales growth, easily surpassing this (relatively) low Required Business Performance. This sent the stock soaring from $95 to more than $130. The company also guided analysts to between 21% and 26% for the fourth quarter.

It is really quite remarkable how consistently such a large company has been able to continue to expand. Moreover, it is impressive that it continues to dominate the online retail space and much of retail in general. But it is the company’s experience over the last year that has been the most remarkable. Despite the stock losing 50% of its market value during the market collapse, the company continued to post strong results throughout.

For the fiscal year that ended in December of 2008, the company posted sales growth of 29% over fiscal 2007. And for the twelve months ending in June of 2009, despite a recession and credit market freeze, the company was still able to report sales growth of nearly 20% over the same period a year earlier. Margins have continued to improve during this growth as well, resulting in operating profit, net income and EPS growth even higher than the growth in sales.

Amazon’s stock’s decline was a market effect, but was accentuated by fears that online spending would be curtailed along with consumer spending generally. Those fears proved to be inflated, as consumers instead focused on the type of values that Amazon provides. Now, with the uncertainty about the direction of sales resolved, the stock price has been corrected and the company is stronger than ever.

At $130 per share, the company’s Required Business Performance implies sales growth of 19.2% in the upcoming year. On some level, it is almost laughable that we are even considering this ridiculously high level of growth for a $50 billion company, but, alas, the internet has produced some incredible efficiencies.

Think about it. The business model that Amazon uses is ideal for rapid growth. It has relatively low requirements for capital investment due to the absence of brick-and-mortar stores and has perfected a very efficient inventory management system. This means that it can ramp up sales without being restricted by the need for new capital or the operational capacity of its existing facilities. Indeed, capital expenditures have averaged less than 20% of operating cash flow since 2002.

The company has no meaningful debt and has been able to achieve all of its recent growth with internally generated capital—a testament to its superior profitability and ability to create value. Moreover, its entry in to international markets gives it the resources to continue to grow at the remarkable rates that it has in the U.S. over its short lifetime. Said differently, company sales are unlikely to stall even if the U.S. market becomes increasingly saturated.

So the question comes down to this: Can Amazon, which reported 28% year-over-year quarterly growth and 19.6% annual growth, produce 19.2% growth in the upcoming twelve-month period?