Amazon.com Inc (AMZN, Financial) experienced a daily gain of 3.89% and a 3-month gain of 0.38%. The Earnings Per Share (EPS) stand at 1.93. The question we aim to answer is, is the stock modestly undervalued? This article provides a detailed valuation analysis of Amazon.com (AMZN). We invite you to read on to understand the intrinsic value of this e-commerce titan.
Company Overview
Amazon.com Inc (AMZN, Financial) is a leading online retailer and one of the highest-grossing e-commerce aggregators. In 2021, it reported $386 billion in net sales and an estimated physical/digital online gross merchandise volume of $578 billion. 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 make up 25%-30% of Amazon's non-AWS sales, led by Germany, the United Kingdom, and Japan.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to GuruFocus' valuation method, the stock of Amazon.com (AMZN, Financial) appears to be modestly undervalued. The 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 $132.71 per share, Amazon.com has a market cap of $1.40 trillion, making the stock appear modestly undervalued.
Given that Amazon.com is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding whether to buy shares. Amazon.com has a cash-to-debt ratio of 0.46, ranking worse than 51% of 1104 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, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. Amazon.com has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $554 billion and Earnings Per Share (EPS) of $1.93. Its operating margin is 3.29%, ranking worse than 50.72% of 1114 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks the profitability of Amazon.com at 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. 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 83.84% of 1046 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 0.5%, ranking worse than 66.63% of 893 companies in the Retail - Cyclical industry.
ROIC vs WACC
Another way to assess the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). 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. For the past 12 months, Amazon.com's ROIC is 5.19, and its WACC is 11.56.
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 66.63% of 893 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.
