Amazon.com Inc (AMZN, Financial) recently experienced a daily loss of -0.74%, with a 3-month gain of 15.88%. The Earnings Per Share (EPS) (EPS) stands at 1.27. With these figures in mind, the question arises: is the stock modestly undervalued? This article aims to provide an in-depth valuation analysis of Amazon.com (AMZN). Read on to discover more about this leading online retailer's intrinsic value.
Company Overview
Amazon.com Inc, a leading online retailer, grossed $386 billion in net sales in 2021, making it one of the highest-grossing e-commerce aggregators. Its estimated physical/digital online gross merchandise volume was approximately $578 billion. Retail-related revenue forms about 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, led by Germany, the United Kingdom, and Japan, constitute 25%-30% of Amazon.com's non-AWS sales.
Understanding GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. This value indicates the fair price at which the stock should be traded.
Amazon.com (AMZN, Financial) appears to be modestly undervalued based on this valuation method. The stock's fair value is estimated using historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overpriced with poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued with higher future returns. At its current price of $ 132.28 per share, Amazon.com stock seems 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
Before investing in a company, it's crucial 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 can provide insights into a company's financial health. Amazon.com has a cash-to-debt ratio of 0.46, which is worse than 51% of 1096 companies in the Retail - Cyclical industry. The overall financial strength of Amazon.com is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those with consistent profitability over the long term. Amazon.com has been profitable 8 years over the past 10 years. Its operating margin of 3.29% is worse than 51.19% of 1096 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks Amazon.com's profitability as strong.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Amazon.com is 21.9%, which ranks better than 83.19% of 1047 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth is 0.5%, which ranks worse than 66.93% of 901 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Amazon.com's return on invested capital is 5.19, and its cost of capital is 11.16.
Conclusion
In summary, the stock of Amazon.com (AMZN, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 66.93% of 901 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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