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Amazon.com Inc Valuation – March 2019 #AMZN

Company Profile (excerpt from Reuters): Amazon.com, Inc., incorporated on May 28, 1996, 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 Company’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AMZN – March 2019

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 $870,058,004,269 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.10 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 1163.52% Pass
6. Moderate PEmg Ratio PEmg < 20 121.09 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 20.33 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 1.10 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.50 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $14.62
MG Growth Estimate 15.00%
MG Value $562.90
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $212.00
MG Value based on 0% Growth $124.28
Market Implied Growth Rate 56.29%
Current Price $1,770.35
% of Intrinsic Value 314.51%

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 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 $0.48 in 2015 to an estimated $14.62 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 56.29% 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 $208.82. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 121.09, which was above the industry average of 27.69. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-88.

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) -$88.00
Graham Number $208.82
PEmg 121.09
Current Ratio 1.10
PB Ratio 20.33
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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 12/1/2018
Total Current Assets $75,101,000,000
Total Current Liabilities $68,391,000,000
Long-Term Debt $23,495,000,000
Total Assets $162,648,000,000
Intangible Assets $18,658,000,000
Total Liabilities $119,099,000,000
Shares Outstanding (Diluted Average) 500,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $21.85
Dec2018 $20.14
Dec2017 $6.15
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $14.62
Dec2018 $9.47
Dec2017 $3.58
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

Recommended Reading:

Other ModernGraham posts about the company

Amazon.com Inc Valuation – June 2018 $AMZN
Amazon.com Inc Valuation – August 2017 $AMZN
Amazon Inc Valuation – July 2016 $AMZN
58 Companies in the Spotlight This Week – 1/31/15
Amazon.com Inc. Annual Valuation – 2015 $AMZN

Other ModernGraham posts about related companies

Dollar Tree Inc Valuation – March 2019 #DLTR
TJX Companies Inc Valuation – February 2019 $TJX
Tractor Supply Co Valuation – February 2019 $TSCO
Tapestry Inc Valuation – February 2019 $TPR
Dollar General Corp Valuation – February 2019 $DG
Tiffany & Co Valuation – February 2019 $TIF
Best Buy Co Inc Valuation – February 2019 $BBY
Macy’s Inc Valuation – January 2019 $M
Ross Stores Inc Valuation – January 2019 $ROST
Walgreens Boots Alliance Inc Valuation – December 2018 $WBA

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.

Amazon.com Inc Valuation – June 2018 $AMZN

Company Profile (excerpt from Reuters): Amazon.com, Inc., incorporated on May 28, 1996, 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 Company’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken.

AMZN Chart

AMZN data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AMZN – June 2018

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 $817,117,294,796 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.06 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 227.44% Pass
6. Moderate PEmg Ratio PEmg < 20 303.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 26.65 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 1.06 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.85 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 $5.55
MG Growth Estimate 15.00%
MG Value $213.75
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $80.50
MG Value based on 0% Growth $47.19
Market Implied Growth Rate 147.41%
Current Price $1,683.99
% of Intrinsic Value 787.82%

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 $0.32 in 2014 to an estimated $5.55 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 147.41% 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 $104.02. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 303.31, which was above the industry average of 37.1. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-88.49.

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) -$88.49
Graham Number $104.02
PEmg 303.31
Current Ratio 1.06
PB Ratio 26.65
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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 3/1/2018
Total Current Assets $50,829,000,000
Total Current Liabilities $48,045,000,000
Long-Term Debt $24,640,000,000
Total Assets $126,362,000,000
Intangible Assets $13,388,000,000
Total Liabilities $94,899,000,000
Shares Outstanding (Diluted Average) 498,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.40
Dec2017 $6.15
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.55
Dec2017 $3.58
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

Recommended Reading:

Other ModernGraham posts about the company

Amazon.com Inc Valuation – August 2017 $AMZN
Amazon Inc Valuation – July 2016 $AMZN
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)

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Ulta Beauty Inc Valuation – June 2018 $ULTA
Kohl’s Corporation Valuation – June 2018 $KSS
Dollar Tree Inc Valuation – May 2018 $DLTR
TJX Companies Inc Valuation – May 2018 $TJX
Tractor Supply Co Valuation – April 2018 $TSCO

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.

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

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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.

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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

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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)

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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.

Amazon Inc Valuation – July 2016 $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 Companies Benjamin Graham Would Invest In Today - June 2016.  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 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’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. The Company has three segments: North America, International and Amazon Web Services (AWS). The Company’s North America segment focuses on retail sales of consumer products from sellers and subscriptions, through its North America-focused Websites, such as www.amazon.com, www.amazon.ca and www.amazon.com.mx. The Company’s International segment includes export sales from its internationally focused Websites, including export sales from its sites to customers in the United States, Mexico and Canada. The Company’s AWS segment focuses on the sales of compute, storage, database and other AWS service offerings for start-ups, enterprises, government agencies and academic institutions. The Company offers Amazon Prime, which is an annual membership program.

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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. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AMZN – July 2016

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 $344,304,591,741 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.08 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 -39.14% Fail
6. Moderate PEmg Ratio PEmg < 20 733.97 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 23.97 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 1.08 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.53 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 Fail

Stage 2: Determination of Intrinsic Value

AMZN value chart July 2016

EPSmg $1.00
MG Growth Estimate -2.61%
MG Value $3.29
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $14.53
MG Value based on 0% Growth $8.52
Market Implied Growth Rate 362.74%
Current Price $735.44
% of Intrinsic Value 22320.41%

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 or growth over the last ten years, 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 or growth 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 seeing its EPSmg (normalized earnings) decline from $1.21 in 2012 to an estimated $1 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 362.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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

Stage 3: Information for Further Research

AMZN charts July 2016

Net Current Asset Value (NCAV) -$32.97
Graham Number $38.43
PEmg 733.97
Current Ratio 1.08
PB Ratio 23.97
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 3/1/2016
Total Current Assets $30,513,000,000
Total Current Liabilities $28,187,000,000
Long-Term Debt $8,219,000,000
Total Assets $61,128,000,000
Intangible Assets $3,785,000,000
Total Liabilities $46,372,000,000
Shares Outstanding (Diluted Average) 481,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.10
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 -$0.11
Dec1996 -$0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.00
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
Dec2000 -$2.03

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

Walgreens Boots Alliance Inc Valuation – July 2016 $WBA
McKesson Corp Valuation – July 2016 $MCK
Ross Stores Inc Valuation – June 2016 $ROST
Bed Bath & Beyond Inc Valuation – June 2016 $BBBY
Wal-Mart Stores Inc Valuation – May 2016 $WMT
Aaron’s Inc Valuation – May 2016 $AAN
Nordstrom Inc Valuation – May 2016 $JWN
Tractor Supply Company Valuation – May 2016 $TSCO
Fossil Group Inc Stock Valuation – February 2016 $FOSL
TJX Companies Inc Valuation – February 2016 Update $TJX

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.

Amazon.com Inc. Annual Valuation – 2015 $AMZN

220px-Amazon.com-Logo.svgBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – December 2014.  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 specific look at how Amazon.com Inc. (AMZN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Amazon.com, Inc. (Amazon.com) is an e-commerce company. The Company sells a range of products and services through its various owned and affiliated Websites. The Company’s products, offered through its consumer-facing Websites, includes merchandise and content that the Company purchase for resale from vendors and those offered by third-party sellers. The Company also manufactures and sells electronic devices. The Company offers services, such as Amazon Web Service (AWS), publishing, digital content subscriptions, advertising, and co-branded credit cards. The Company serves through the lowest prices possible on everyday product pricing and shipping offers, including membership in Amazon Prime. The Company designs its Websites to enable millions of products to be sold by the Company and by third parties across various product categories, allowing access to its Websites directly and through its mobile Websites, Kindle devices and apps.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 0/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - FAIL
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $312.39
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $0.35
Value Based on 0% Growth $0.20
Market Implied Growth Rate 6503.87%
Net Current Asset Value (NCAV) -$24.86
PEmg 13,016.25
Current Ratio 0.89
PB Ratio 13.99

Balance Sheet – September 2014

Current Assets $18,572,000,000
Current Liabilities $20,842,000,000
Total Debt $3,099,000,000
Total Assets $40,419,000,000
Intangible Assets $3,332,000,000
Total Liabilities $30,083,000,000
Outstanding Shares 463,000,000

Earnings Per Share

2014 (estimate) -$1.40
2013 $0.59
2012 -$0.09
2011 $1.37
2010 $2.53
2009 $2.04
2008 $1.49
2007 $1.12
2006 $0.45
2005 $0.84
2004 $1.39

Earnings Per Share – ModernGraham

2014 (estimate) $0.02
2013 $0.92
2012 $1.21
2011 $1.81
2010 $1.86
2009 $1.42

Dividend History
Amazon.com Inc. does not pay a dividend.

Conclusion:

Amazon.com Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth or stability over the last ten years, the lack of dividends and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets, and the lack of earnings growth or stability over the last five years, and the lack of dividends.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.86 in 2010 to an estimated $0.02 for 2014.  This level of growth does not support the market’s implied estimate of growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out previous ModernGraham valuations of Amazon.com Inc. (AMZN) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Amazon.com Inc. (AMZN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Amazon.com Inc. (AMZN) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

A Comparison of Four Listed Companies ($AMZN, $INTC, $NFLX, and $WFC) (MG Book Club Chapter 13)

photo (6)

A Comparison of Four Listed Companies

This is the thirteenth discussion of the ModernGraham Book Club’s reading of The Intelligent Investor by Benjamin Graham (affiliate link).  In last week’s discussion, we discussed the twelfth chapter, which looked at factors Intelligent Investors should consider when utilizing earnings per share data  This week we will discuss the thirteenth chapter, which is titled “A Comparison of Four Listed Companies.”  I encourage you to purchase the book (preferably by clicking the link to Amazon, because a purchase through that link will help support the club) and join in with us as we read through a chapter each week; however, even if you don’t have the book I think you will find our discussions to be very useful in your own understanding of value investing, and you can still bring a lot to the discussion from your own experiences as an investor.  Whether this is the first day you’ve ever been interested in investing, or you have decades of experience with the stock market, we’d love to hear your thoughts in the comments below!

Please feel free to leave a comment on this post with your own responses to the questions, along with any other thoughts you have, and return throughout the next couple of days to see what others have said. If you find something that has been said by another commentator interesting, feel free to respond to them with another comment.  We’ve had some great discussions throughout the book club, so keep it up!

ModernGraham’s Comments

In this chapter, Graham does exactly what his title eludes to:  he compares four different companies to discuss the applications of some of the concepts he has raised in earlier chapters.  This is a great read for anyone who wants a brief explanation of some of the practical implications of Graham’s methods, and the comparison serves as a good introduction to the chapters that follow.  Of the four companies Graham reviewed, two of them passed all seven of his Defensive Investor requirements, and it is interesting to find that in Zweig’s notes, one of the ones that did not pass the requirements dropped in price by nearly 73% in only 10 years.

This may be a good time to do a quick comparison of four companies today.  Let’s take a look at some key data for Amazon Inc. (AMZN), Intel Corp (INTC), Netflix Inc. (NFLX), and Wells Fargo Co. (WFC):

Defensive Investor Requirements

AMZN INTC NFLX WFC
Adequate Size of Enterprise – market capitalization of at least $2 billion Pass Pass Pass Pass
Sufficiently Strong Financial Condition – current ratio greater than 2 Fail Pass Fail N/A*
Earnings Stability – positive earnings per share for at least 10 straight years Fail Pass Pass Pass
Dividend Record – has paid a dividend for at least 10 straight years Fail Pass Fail Pass
Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period Fail Pass Pass Pass
Moderate PEmg ratio – PEmg is less than 20 Fail Pass Fail Pass
Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 Fail Pass Fail Pass
Score 1 7 3 6

Enterprising Investor Requirements

AMZN INTC NFLX WFC
Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 Fail Pass Pass N/A*
Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 Fail Pass Pass N/A*
Earnings Stability – positive earnings per share for at least 5 years Fail Pass Pass Pass
Dividend Record – currently pays a dividend Fail Pass Fail Pass
Earnings growth – EPSmg greater than 5 years ago Fail Pass Pass Pass
Score 0 5 4 3

*As a financial company, Wells Fargo is not required to pass the tests regarding current assets and current liabilities.

Valuation Summary

AMZN INTC NFLX WFC
Recent Price $297.70 $25.82 $349.88 $49.08
MG Value $0.00 $48.51 $28.04 $124.32
MG Opinion Overvalued Undervalued Overvalued Undervalued
Value Based on 3% Growth $13.00 $28.46 $32.24 $50.5
Value Based on 0% Growth $7.62 $16.68 $18.90 $29.6
Market Implied Growth Rate 213.23% 2.33% 73.36% 2.79%
Net Current Asset Value (NCAV) -$11.88 -$0.67 -$16.40 14.08
PEmg 434.97 13.16 155.21 1.52
Current Ratio 1.07 2.25 1.58 N/A
PB Ratio 19.66 2.21 13.99 N/A

Earnings per Share – ModernGraham

AMZN INTC NFLX WFC
2014 not yet estimated $1.96 $2.22 $3.48
2013 $0.90 $2.00 $2.05 $3.17
2012 $1.21 $1.91 $2.15 $2.59
2011 $1.81 $1.69 $2.81 $2.13
2010 $1.86 $1.27 $1.96 $1.83
2009 $1.41 $0.95 $1.34 $1.73

Analysis

Comparing the four, it is clear that the gems are Intel and Wells Fargo, while the market may be expressing over-exuberance regarding Amazon and Netflix.  After all, Wells Fargo’s EPSmg (normalized earnings) for 2013 were more than four times the amount Amazon earned that year, and yet Amazon’s price is nearly six times the price for Wells Fargo.  In order for that price difference to be justified, Amazon would have to achieve extremely high growth going forward, but the historical data actually shows the company has seen a drop in its EPSmg every year since 2010.

Discussion Questions

Please leave a comment below and feel free to answer any of these questions, or just give your general thoughts.

  1. What quote from this chapter do you think best summarizes the point Graham is making?
  2. When considering potential investments against one another, what factors do you utilize in analysis?

  3. What do you think of Amazon, Intel, Netflix, and/or Wells Fargo?
  4. What four companies would you compare today?
  5. What did you think of the chapter overall?

Next Week’s Discussion: Chapter Fourteen

Chapter Title – Stock Selection for the Defensive Investor

When reading the next chapter, try to think about how the concepts Graham presents in the chapter could apply to your own investments, whether you consider yourself a Defensive Investor or an Enterprising Investor.

What are some other ways to participate?

If you are a blogger, you can give your thoughts in a post on your own site, link to the discussion here on ModernGraham, and I will be sure to let our readers know that the conversation is going on over at your site as well.

In addition, you can use the hashtag #MGBookClub in social media to talk about the book on Twitter or Facebook!

ModernGraham Valuation: Amazon Inc. (AMZN)

moneyCompany Profile (obtained from Google Finance): Amazon.com, Inc. (Amazon.com) serves consumers through its retail websites and focus on selection, price, and convenience. The Company offers programs that enables sellers to sell their products on its websites and their own branded websites and to fulfill orders through them , and programs that allow authors, musicians, filmmakers, application developers, and others to publish and sell content. The Company operates in two segments: North America and International. The Company serves consumers through its retail websites, and focus on selection, price, and convenience. The Company designs its websites to enable millions of products to be sold by the Company and by third parties across dozens of product categories. Customers access its websites directly and through its mobile websites and apps. It also manufactures and sells Kindle devices. In October 2013, Amazon.com Inc acquired TenMarks Education Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 0/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $0.00 ** See conclusion
MG Opinion Overvalued
Value Based on 3% Growth $13.00
Value Based on 0% Growth $7.62
Market Implied Growth Rate 213.23%
Net Current Asset Value (NCAV) -$11.88
PEmg 434.97
Current Ratio 1.07
PB Ratio 19.66

Balance Sheet – 9/30/2013 

Current Assets $17,334,000,000
Current Liabilities $16,135,000,000
Total Debt $3,043,000,000
Total Assets $31,861,000,000
Intangible Assets $2,635,000,000
Total Liabilities $22,774,000,000
Outstanding Shares 458,000,000

Earnings Per Share

2013 (estimate) $0.52
2012 -$0.09
2011 $1.37
2010 $2.53
2009 $2.04
2008 $1.49
2007 $1.12
2006 $0.45
2005 $0.78
2004 $1.39
2003 $0.08
2002 -$0.40

Earnings Per Share – ModernGraham 

2013 (estimate) $0.90
2012 $1.21
2011 $1.81
2010 $1.86
2009 $1.41
2008 $1.08

Conclusion:

Value investors seeking to follow Benjamin Graham’s methods have established criteria for whether a company is worthy of investment; in the case of Amazon, the company scores almost as poorly as is possible under these requirements.  In fact, the only requirement for either the Defensive Investor or the Enterprising Investor that Amazon satisfies is the market cap.  As a result, includes a level of risk that is far too high for either investor type, and Intelligent Investors would be best suited by researching other opportunities, beginning with a review of ModernGraham’s Valuation of Apple.  From a valuation side of things, Amazon’s EPSmg (normalized earnings) have dropped from $1.08 in 2008 to an estimated $0.90.  This drop in earnings leads the ModernGraham valuation model to return an intrinsic value of $0, indicating that any value in the company must come from something other than earnings.  It should also be noted that the market seems to be implying a growth rate of over 200%, which is far above what the company has achieved historically.  As a result, Amazon would appear to be overvalued at this time.

What do you think?  Do you agree that Amazon Inc. is overvalued?  What would be your assessment?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Amazon Inc. (AMZN) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

Tiffany & Co Valuation – February 2019 $TIF

Company Profile (excerpt from Reuters): Tiffany & Co., incorporated on August 16, 1984, is a holding company that operates through its subsidiary companies. The Company’s principal subsidiary, Tiffany and Company (Tiffany), is a jeweler and specialty retailer. Through its subsidiaries, the Company designs and manufactures products and operates TIFFANY & CO. retail stores around the world, and also sells its products through Internet, catalog, business-to-business and wholesale operations. The Company’s segments include Americas, Asia-Pacific, Japan, Europe and Other. The Company also sells timepieces, leather goods, sterling silverware, china, crystal, stationery, fragrances and accessories.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TIF – February 2019

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 $10,742,782,275 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.86 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 33.17% Fail
6. Moderate PEmg Ratio PEmg < 20 23.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.59 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 5.86 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.29 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.78
MG Growth Estimate 4.44%
MG Value $65.64
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $54.76
MG Value based on 0% Growth $32.10
Market Implied Growth Rate 7.41%
Current Price $88.10
% of Intrinsic Value 134.21%

Tiffany & Co. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.91 in 2015 to an estimated $3.78 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.41% 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 Tiffany & Co. revealed the company was trading above its Graham Number of $52.13. The company pays a dividend of $1.95 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.33, which was below the industry average of 27.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $12.43.

Tiffany & Co. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $12.43
Graham Number $52.13
PEmg 23.33
Current Ratio 5.86
PB Ratio 3.59
Current Dividend $1.95
Dividend Yield 2.21%
Number of Consecutive Years of Dividend Growth 15

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 10/1/2018
Total Current Assets $3,608,500,000
Total Current Liabilities $615,500,000
Long-Term Debt $880,000,000
Total Assets $5,100,700,000
Intangible Assets $0
Total Liabilities $2,078,300,000
Shares Outstanding (Diluted Average) 123,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.65
Jan2018 $2.96
Jan2017 $3.55
Jan2016 $3.59
Jan2015 $3.73
Jan2014 $1.41
Jan2013 $3.25
Jan2012 $3.40
Jan2011 $2.87
Jan2010 $2.11
Jan2009 $1.74
Jan2008 $2.34
Jan2007 $1.80
Jan2006 $1.75
Jan2005 $2.05
Jan2004 $1.45
Jan2003 $1.28
Jan2002 $1.15
Jan2001 $1.26
Jan2000 $0.97
Jan1999 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.78
Jan2018 $3.24
Jan2017 $3.29
Jan2016 $3.13
Jan2015 $2.91
Jan2014 $2.54
Jan2013 $2.96
Jan2012 $2.71
Jan2011 $2.30
Jan2010 $1.99
Jan2009 $1.93
Jan2008 $1.98
Jan2007 $1.76
Jan2006 $1.67
Jan2005 $1.56
Jan2004 $1.29
Jan2003 $1.16

Recommended Reading:

Other ModernGraham posts about the company

Tiffany & Co. Valuation – April 2018 $TIF
Tiffany & Co Valuation – August 2016 $TIF
Tiffany & Company Valuation – February 2016 Update $TIF
Tiffany and Company Valuation – October 2015 Update $TIF
Tiffany & Company Analysis – July 2015 Update $TIF

Other ModernGraham posts about related companies

Best Buy Co Inc Valuation – February 2019 $BBY
Macy’s Inc Valuation – January 2019 $M
Ross Stores Inc Valuation – January 2019 $ROST
Walgreens Boots Alliance Inc Valuation – December 2018 $WBA
Nordstrom Inc Valuation – December 2018 $JWN
Walmart Inc Valuation – November 2018 $WMT
Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
McKesson Corp Valuation – June 2018 $MCK
Big 5 Sporting Goods Corp Valuation – June 2018 $BGFV
Amazon.com Inc Valuation – June 2018 $AMZN

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.

Best Buy Co Inc Valuation – February 2019 $BBY

Company Profile (excerpt from Reuters): Best Buy Co., Inc., incorporated on October 20, 1966, is a provider of technology products, services and solutions. The Company offers products and services to the customers visiting its stores, engaging with Geek Squad agents, or using its Websites or mobile applications. It has operations in the United States, Canada and Mexico. The Company operates through two segments: Domestic and International. The Domestic segment consists of the operations in all states, districts and territories of the United States, under various brand names, including Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater, and Pacific Kitchen and Home. The International segment consists of all operations in Canada and Mexico under the brand names, Best Buy, bestbuy.com.ca, bestbuy.com.mx, Best Buy Express, Best Buy Mobile and Geek Squad. As of December 31, 2016, the Company operated 1,200 large-format and 400 small-format stores throughout its Domestic and International segments. It has a global sourcing operation to design, develop, test and contract-manufacture its brand products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BBY – February 2019

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 $15,734,394,268 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.10 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 330.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.00 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.42 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 1.10 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.32 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.90
MG Growth Estimate 15.00%
MG Value $150.10
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $56.53
MG Value based on 0% Growth $33.14
Market Implied Growth Rate 3.25%
Current Price $58.47
% of Intrinsic Value 38.95%

Best Buy Co 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 PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.33 in 2015 to an estimated $3.9 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.25% 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 above the price.

At the time of valuation, further research into Best Buy Co Inc revealed the company was trading above its Graham Number of $38.2. The company pays a dividend of $1.36 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15, which was below the industry average of 27.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.89.

Best Buy Co Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.89
Graham Number $38.20
PEmg 15.00
Current Ratio 1.10
PB Ratio 5.42
Current Dividend $1.36
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 5

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 10/1/2018
Total Current Assets $10,901,000,000
Total Current Liabilities $9,933,000,000
Long-Term Debt $1,280,000,000
Total Assets $15,000,000,000
Intangible Assets $1,304,000,000
Total Liabilities $11,988,000,000
Shares Outstanding (Diluted Average) 279,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.08
Jan2018 $3.26
Jan2017 $3.81
Jan2016 $2.56
Jan2015 $3.49
Jan2014 $1.53
Jan2013 $0.00
Feb2012 -$3.36
Feb2011 $3.08
Feb2010 $3.10
Feb2009 $2.39
Feb2008 $3.12
Feb2007 $2.79
Feb2006 $2.27
Feb2005 $1.96
Feb2004 $1.41
Feb2003 $0.21
Feb2002 $1.18
Feb2001 $0.83
Feb2000 $0.73
Feb1999 $0.46

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.90
Jan2018 $3.18
Jan2017 $2.85
Jan2016 $1.87
Jan2015 $1.33
Jan2014 $0.46
Jan2013 $0.29
Feb2012 $0.85
Feb2011 $2.93
Feb2010 $2.82
Feb2009 $2.62
Feb2008 $2.59
Feb2007 $2.13
Feb2006 $1.67
Feb2005 $1.28
Feb2004 $0.92
Feb2003 $0.68

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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.

Macy’s Inc Valuation – January 2019 $M

Company Profile (excerpt from Reuters): Macy’s, Inc., incorporated on December 13, 1985, is an omnichannel retail company operating stores, Websites and mobile applications under various brands, such as Macy’s, Bloomingdale’s and Bluemercury. The Company sells a range of merchandise, including apparel and accessories (men’s, women’s and children’s), cosmetics, home furnishings and other consumer goods. The Company’s subsidiaries provide various support functions to its retail operations on an integrated, company-wide basis. The Company’s bank subsidiary, FDS Bank, provides credit processing, certain collections, customer service and credit marketing services in respect of all credit card accounts that are owned either by Department Stores National Bank (DSNB), a subsidiary of Citibank N.A., or FDS Bank and that constitutes a part of the credit programs of the Company’s retail operations. Macy’s Systems and Technology, Inc. (MST), a subsidiary of the Company, provides operational electronic data processing and management information services to all of the Company’s operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of M – January 2019

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 $7,941,872,586 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 88.38% Pass
6. Moderate PEmg Ratio PEmg < 20 7.01 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.42 Pass
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 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.46 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.68
MG Growth Estimate 0.29%
MG Value $33.41
Opinion Fairly Valued
MG Grade A-
MG Value based on 3% Growth $53.30
MG Value based on 0% Growth $31.25
Market Implied Growth Rate -0.75%
Current Price $25.76
% of Intrinsic Value 77.11%

Macy’s Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.61 in 2015 to an estimated $3.68 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 0.75% annual earnings loss 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 within a margin of safety relative to the price.

At the time of valuation, further research into Macy’s Inc revealed the company was trading below its Graham Number of $39.21. The company pays a dividend of $1.51 per share, for a yield of 5.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.01, which was below the industry average of 25.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.38.

Macy’s Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.38
Graham Number $39.21
PEmg 7.01
Current Ratio 1.34
PB Ratio 1.42
Current Dividend $1.51
Dividend Yield 5.86%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $8,667,000,000
Total Current Liabilities $6,444,000,000
Long-Term Debt $5,469,000,000
Total Assets $20,361,000,000
Intangible Assets $4,389,000,000
Total Liabilities $14,716,000,000
Shares Outstanding (Diluted Average) 312,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.67
Jan2018 $5.04
Jan2017 $1.99
Jan2016 $3.22
Jan2015 $4.22
Jan2014 $3.86
Jan2013 $3.24
Jan2012 $2.92
Jan2011 $1.98
Jan2010 $0.78
Jan2009 -$11.40
Jan2008 $1.97
Jan2007 $1.81
Jan2006 $3.24
Jan2005 $1.93
Jan2004 $1.86
Jan2003 $2.06
Jan2002 -$0.71
Jan2001 -$0.45
Jan2000 $1.81
Jan1999 $1.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.68
Jan2018 $3.67
Jan2017 $3.10
Jan2016 $3.60
Jan2015 $3.61
Jan2014 $3.05
Jan2013 $1.60
Jan2012 $0.27
Jan2011 -$1.03
Jan2010 -$1.93
Jan2009 -$2.35
Jan2008 $2.17
Jan2007 $2.24
Jan2006 $2.19
Jan2005 $1.43
Jan2004 $1.09
Jan2003 $0.75

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Other ModernGraham posts about the company

10 Stocks for Using A Benjamin Graham Value Investing Strategy – May 2018
Macy’s Inc Valuation – April 2018 $M
Macy’s Inc Valuation – July 2016 $M
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Macy’s Inc. Annual Valuation – 2015 $M

Other ModernGraham posts about related companies

Ross Stores Inc Valuation – January 2019 $ROST
Walgreens Boots Alliance Inc Valuation – December 2018 $WBA
Nordstrom Inc Valuation – December 2018 $JWN
Walmart Inc Valuation – November 2018 $WMT
Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
McKesson Corp Valuation – June 2018 $MCK
Big 5 Sporting Goods Corp Valuation – June 2018 $BGFV
Amazon.com Inc Valuation – June 2018 $AMZN
Fossil Group Inc Valuation – June 2018 $FOSL
Costco Wholesale Corp Valuation – June 2018 $COST

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.

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