Amazon.com’s stock appears to be
Amazon.com (NAS: AMZN, 30-year Financials) stock appears to be fair valued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 3,719.34 per share and market cap of $ 1,875.8 billion, Amazon.com stock is showing all signs of a fair valuation. The GF value for Amazon.com is shown in the table below.
Because Amazon.com is fairly valued, its long-term stock return is likely to be close to the growth rate of its business, which has averaged 28% over the past three years and is expected to grow by 19.70% per year over the next three years. at five years.
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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Amazon.com has a cash-to-debt ratio of 0.86, which is within the average for companies in the retail industry – cyclical. GuruFocus ranks Amazon.com’s overall financial strength as 6 out of 10, indicating that Amazon.com’s financial strength is fair. Here is Amazon.com’s debt and cash flow for the past few years:
Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Amazon.com has been profitable 8 years in the past 10 years. In the past 12 months, the company achieved sales of $ 419.1 billion and earnings of $ 52.55 per share. Its operating margin of 6.63% is better than 66% of companies in the Retail – Cyclical industry. Overall, GuruFocus ranks Amazon.com’s profitability as strong. Here is Amazon.com’s revenue and net income for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Amazon.com’s 3-year average annual revenue growth is 28%, which is better than 93% of companies in the retail – cyclical industry. The 3-year average EBITDA growth rate is 45.2%, which ranks better than 89% of companies in the Retail – Cyclical industry.
Another way to assess a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures the extent to which a business 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 should pay on average to all of its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating shareholder value. Over the past 12 months, Amazon.com’s ROIC was 13.47, while its WACC was 7.91. Amazon.com’s ROIC vs WACC historical comparison is shown below:
In conclusion, the Amazon.com stock (NAS: AMZN, 30-year Financials) seems to be just valued. The company’s financial position is fair and its profitability is solid. Its growth ranks better than 89% of companies in the Retail – Cyclical industry. To learn more about the Amazon.com stock, you can view its 30-year financial data here.
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