Amazon.com Inc (AMZN, Financial) has seen a daily gain of 7.58%, with a 3-month loss of -0.19%, and an Earnings Per Share (EPS) of 1.27. A critical question arises: is the stock significantly undervalued? This article aims to provide a detailed valuation analysis of Amazon.com (AMZN) to answer this question. We invite you to read on for an in-depth exploration of the company's value.
Company Introduction
Amazon.com 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, Amazon.com has established a strong presence in the e-commerce industry. The company's revenue is primarily derived from retail-related revenue, Amazon Web Services' cloud computing, storage, database, and other offerings, advertising services, and other sources. International segments, led by Germany, the United Kingdom, and Japan, constitute 25%-30% of Amazon.com's non-AWS sales.
The focus of this analysis is to compare the stock price of Amazon.com with its GF Value, an estimation of fair value. This comparison will pave the way for a deeper exploration of the company's value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is derived from the historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of the business performance.
According to the GF Value, the stock of Amazon.com appears to be significantly undervalued. At its current price of $128.64 per share, Amazon.com has a market cap of $1.30 trillion and the stock appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Before investing in a company, it's essential to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Amazon.com's cash-to-debt ratio is 0.46, which is worse than 50.81% of 1106 companies in the Retail - Cyclical industry. The overall financial strength of Amazon.com is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Amazon.com's profitability has been strong, with the company being profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $538 billion and an Earnings Per Share (EPS) of $1.27. Its operating margin is 3.29%, which ranks worse than 50.63% of 1116 companies in the Retail - Cyclical industry.
Amazon.com's growth is another critical factor to consider. The company's 3-year average revenue growth rate is better than 83.87% of 1048 companies in the Retail - Cyclical industry. However, Amazon.com's 3-year average EBITDA growth rate is 0.5%, which ranks worse than 66.67% of 894 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Amazon.com's ROIC was 5.19 over the past 12 months, while its WACC came in at 11.63.
Conclusion
In summary, the stock of Amazon.com appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 66.67% of 894 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
