Amazon.com Inc (AMZN, Financial) recently saw a significant daily gain of 10.89% and reported an Earnings Per Share (EPS) of $0.42. The question that arises now is whether the stock is modestly undervalued at its current trading price. This article will delve into a comprehensive valuation analysis of Amazon.com (AMZN) to answer that question. We encourage our readers to follow along as we unpack the financials of this e-commerce titan.
Company Overview
Amazon.com Inc, a leading online retailer, is known for its staggering net sales of $386 billion and an estimated physical/digital online gross merchandise volume of $578 billion in 2021. The company's revenue primarily stems from retail-related activities, which account for approximately 80% of the total. Amazon Web Services' cloud computing, storage, and database offerings contribute 10%-15%, followed by advertising services at 5%. International segments, led by Germany, the United Kingdom, and Japan, make up 25%-30% of Amazon.com's non-AWS sales.
Understanding the GF Value
The GF Value is a proprietary measure that helps determine a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair value. The stock price is expected to fluctuate around this line.
Based on our proprietary valuation method, Amazon.com (AMZN, Financial) appears to be modestly undervalued. The GF Value estimates the stock's fair value at $202.13, factoring in historical multiples, past business growth, and future business performance estimates. Stocks significantly above the GF Value Line are generally overvalued and may yield poor future returns. Conversely, stocks significantly below the GF Value Line are likely undervalued and may offer higher future returns. With a current price of $142.95 per share and a market cap of $1.5 trillion, Amazon.com seems to be modestly undervalued.
Considering that Amazon.com is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth. For potential options that may deliver higher future returns at reduced risk, you can explore these companies.
Financial Strength Analysis
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to analyze a company's financial strength before investing. Key indicators such as the cash-to-debt ratio can provide valuable insights. Amazon.com has a cash-to-debt ratio of 0.46, ranking worse than 51.45% of companies in the Retail - Cyclical industry. The overall financial strength of Amazon.com is rated 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Amazon.com has been profitable 8 out of the past 10 years. Over the past twelve months, the company reported a revenue of $524.9 billion and Earnings Per Share (EPS) of $0.42. The company's operating margin is 2.54%, ranking worse than 56.68% of companies in the Retail - Cyclical industry. Overall, GuruFocus ranks the profitability of Amazon.com at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Amazon.com is 21.9%, ranking better than 83.33% of companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 0.5%, ranking worse than 66.93% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Amazon.com's ROIC was 5.3, while its WACC came in at 11.3.
Conclusion
In conclusion, Amazon.com Inc (AMZN, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 66.93% of companies in the Retail - Cyclical industry. To learn more about Amazon.com stock, you can check out its 30-Year Financials here.
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