Retail Stocks

Amazon.com Inc Valuation – August 2017 $AMZN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Amazon.com Inc (AMZN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Amazon.com, Inc. offers a range of products and services through its Websites. The Company operates through three segments: North America, International and Amazon Web Services (AWS). The North America segment consists of retail sales of consumer products (including from sellers) and subscriptions through North America-focused Websites, such as www.amazon.com, www.amazon.ca and www.amazon.com.mx. The International segment primarily consists of retail sales of consumer products (including from sellers) and subscriptions through internationally-focused Websites, such as www.amazon.com.au, www.amazon.nl, www.amazon.es and www.amazon.co.uk. The AWS segment consists of sales of compute, storage, database, and other service offerings for start-ups, enterprises, government agencies and academic institutions. The Company’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It manufactures and sells electronic devices.

AMZN Chart

AMZN data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AMZN – August 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $457,940,923,915 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 93.23% Pass
6. Moderate PEmg Ratio PEmg < 20 282.04 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 20.20 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 15.78 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.38
MG Growth Estimate 15.00%
MG Value $130.13
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $49.01
MG Value based on 0% Growth $28.73
Market Implied Growth Rate 136.77%
Current Price $953.29
% of Intrinsic Value 732.57%

Amazon.com, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years, and the lack of dividends.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.92 in 2013 to an estimated $3.38 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 136.77% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Amazon.com, Inc. revealed the company was trading above its Graham Number of $71.12.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was 282.04, which was above the industry average of 48.5.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-47.89.

Amazon.com, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$47.89
Graham Number $71.12
PEmg 282.04
Current Ratio 1.01
PB Ratio 20.20
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $41,007,000,000
Total Current Liabilities $40,520,000,000
Long-Term Debt $7,683,000,000
Total Assets $87,781,000,000
Intangible Assets $4,254,000,000
Total Liabilities $64,567,000,000
Shares Outstanding (Diluted Average) 492,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.56
Dec2016 $4.90
Dec2015 $1.25
Dec2014 -$0.52
Dec2013 $0.59
Dec2012 -$0.09
Dec2011 $1.37
Dec2010 $2.53
Dec2009 $2.04
Dec2008 $1.49
Dec2007 $1.12
Dec2006 $0.45
Dec2005 $0.84
Dec2004 $1.39
Dec2003 $0.08
Dec2002 -$0.39
Dec2001 -$1.56
Dec2000 -$4.02
Dec1999 -$2.20
Dec1998 -$0.42
Dec1997 -$0.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.38
Dec2016 $1.94
Dec2015 $0.48
Dec2014 $0.32
Dec2013 $0.92
Dec2012 $1.21
Dec2011 $1.81
Dec2010 $1.86
Dec2009 $1.42
Dec2008 $1.09
Dec2007 $0.85
Dec2006 $0.64
Dec2005 $0.51
Dec2004 -$0.07
Dec2003 -$1.07
Dec2002 -$1.67
Dec2001 -$2.10

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
Amazon.com Inc. Annual Valuation – 2015 $AMZN
A Comparison of Four Listed Companies ($AMZN, $INTC, $NFLX, and $WFC) (MG Book Club Chapter 13)
14 Companies in the Spotlight This Week – 1/11/14
ModernGraham Valuation: Amazon Inc. (AMZN)

Other ModernGraham posts about related companies

Fossil Group Inc Valuation – March 2017 $FOSL
Lumber Liquidators Holdings Inc Valuation – Initial Coverage $LL
CVS Health Corp Valuation – March 2017 $CVS
Target Corp Valuation – March 2017 $TGT
Foot Locker Inc Valuation – Initial Coverage $FL
Ulta Beauty Inc Valuation – Initial Coverage $ULTA
Kohl’s Corporation Valuation – March 2017 $KSS
Stamps.com Inc Valuation – Initial Coverage $STMP
Kirkland’s Inc Valuation – Initial Coverage $KIRK
Dollar Tree Inc Valuation – February 2017 $DLTR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top