Amazon.com Inc (AMZN, Financial) has been a hot topic among investors, with a daily loss of 2.45% and a 3-month gain of 8.81%. Its Earnings Per Share (EPS) (EPS) stands at 1.27. But the question is, is the stock modestly undervalued? This article aims to provide an in-depth analysis of Amazon.com's valuation to answer this question. We encourage you to read on for a comprehensive understanding of the company's value.
Company Overview
Amazon.com Inc (AMZN, Financial) is a leading online retailer and one of the highest-grossing e-commerce aggregators, with $386 billion in net sales and approximately $578 billion in estimated physical/digital online gross merchandise volume in 2021. Retail-related revenue represents approximately 80% of the total, followed by Amazon Web Services' cloud computing, storage, database, and other offerings (10%-15%), advertising services (5%), and others. International segments constitute 25%-30% of Amazon's non-AWS sales, led by Germany, the United Kingdom, and Japan.
Understanding GF Value
The GF Value is a unique measure of the intrinsic value of a stock. It's computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Amazon.com (AMZN, Financial) appears to be modestly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $136.55 per share, Amazon.com has a market cap of $1.40 trillion and appears to be modestly undervalued.
Because Amazon.com is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Amazon.com has a cash-to-debt ratio of 0.46, which ranks worse than 50.5% of 1103 companies in the Retail - Cyclical industry. Based on this, GuruFocus ranks Amazon.com's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Amazon.com has been profitable 8 years over the past 10 years. Its operating margin of 3.29% is worse than 50.23% of 1107 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks Amazon.com's profitability as strong.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Amazon.com is 21.9%, which ranks better than 83.68% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 0.5%, which ranks worse than 66.7% of 895 companies in the Retail - Cyclical industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. During the past 12 months, Amazon.com's ROIC is 5.19 while its WACC came in at 11.16.
Conclusion
Overall, Amazon.com (AMZN, Financial) stock appears to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 66.7% of 895 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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