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Stock Valuation and Analysis

Stock Valuation and Analysis

Introduction

Amazon.com, Incorporated is a mega online retailer that specializes in e-commerce and cloud computing. It is one of the largest internet companies in the world and one of the largest employers in the United States. It was founded on July 5, 1994 by current Chairman, President and CEO, Jeff Bezos. It employs 341,400 full time employees and it is centrally headquartered in Seattle, Washington. Most investors believed Amazon’s stock was overpriced however, that opinion quickly changed after the company announced in 2017 that they would be purchasing Whole Foods.

Financial Information and Statistics

Below is Amazon’s pertinent financial information and statistics:

· Ticker symbol: AMZN

· Current stock price: $992.89

· Market cap: $474.38B

· Price to earnings Ratio: $186.86

· Dividend and yield: N/A

· Enterprise value: N/A

· Beta: 1.41

· Was there a stock split? No

· Closing stock price for the last 5 days: $978.28, $966.21, $980.62, $976.47, $964.00

· 52 week high: $1,016.50

· Book value per share:

· Type of rating analysts are recommending: 1.9 – Buy

· Target price analysts recommending: $994.35

· Analyst’s average revenue estimate for the next year: 201.01B

Amazon made headlines on June 16, 2017 when they announced they would be purchasing Whole Foods for $13.7 billion – the company’s biggest acquisition to date. According to an article by Underhill, “Amazon plans to buy Whole Foods for $42 per share, well above its $33 closing price yesterday, which sent Whole Foods shares surging 27% to trade at $41.99 per share” (Underhill, 2017). The shares of its competition such as Kroger and Walmart have experienced a significant decrease and Amazon has fully stretched their grocery specialty.

Recommendation

Based on Amazon’s financial information, historical growing financial trend, statistics and the analyst recommendation rating, it would be a beneficial financial decision to invest in this stock. According to analysts, Amazon’s stock is estimated to grow by 69.30% by the next year and 27.39% within the next five years. That is a significant growth estimate compared to other large e-commerce businesses.

Relationship between the Value of the Stock and Price to Earnings Ratio

It is important to note the relationship between the value of a stock and the price to earnings ratio. The value of a stock takes into account the stock’s present day overall health. Whereas the price to earnings ratio takes into consideration the company’s past twelve month’s earnings. Aside from earnings, there are four factors that influence the value of a stock: brand, human capital, expectations and barriers to entry (How to Use the P/E Ratio and PEG to tell a stock’s Future, 2016). According to Cambell, “A simple P/E ratio can reveal the stock’s real market value and how the valuation compares to its industry group or a benchmark” (Campbell, n.d.). When using a company’s value alongside the company’s price to earnings ratio, a potential investor can determine the company’s overall financial health.

Market Capitalization and Beta

A company’s market capitalization (commonly referred to as market cap) and beta are important aspects that investors must consider. Each aspect gives a different perspective on the nature of the company. “Market capitalization refers to the total dollar market value of a company’s outstanding shares… Using market capitalization to show the size of a company is important because company size is a basic determinant of various characteristics in which investors are interested, including risk” (Market Capitalization, n.d.). Market caps are crucial to investors – it basically informs investors the company’s worth in dollars.

A company’s beta “Is a measure of the volatility, or systematic risk, of a security or a portfolio, in comparison to the market as a whole… Essentially, beta expresses the fundamental tradeoff between minimizing risk and maximizing return” (Beta, n.d.). A company’s beta is also important to investors – it shows a company’s stability in the market. Investors are more reluctant to buy shares with a company that has a beta of greater than 1 due to increased risk (but a higher rate of return).

Conclusion

Overall, the worth of Amazon’s stock has been steadily increasing over the years. It would be a beneficial financial investment to purchase Amazon’s stock and it would be recommended to do so. It is also important to take into account Amazon’s present value and its price to earnings ratio to gain an overall view of the company’s financial health. Understanding the company’s market capitalization and their beta is also important to determining the financial risk with investing in that company.

References

Beta. (n.d.). Retrieved June 19, 2017, from http://www.investopedia.com/walkthrough/fund-guide/introduction/1/beta.aspx?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186

Campbell, R. (n.d.). Profit with the Power of P/E Ratio. Retrieved June 19, 2017, from http://www.investopedia.com/articles/basics/10/profit-with-pe-power.asp

How to Use the P/E Ratio and PEG to tell a stock’s Future. (2016, March 17). Retrieved June 19, 2017, from

http://www.investopedia.com/articles/00/092200.asp

Market Capitalization. (n.d.). Retrieved June 19, 2017, from http://www.investopedia.com/terms/m/marketcapitalization.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186

Underhill, J. (2017, June 16). Today’s charts: Amazon and Whole Foods surge on mega-deal, grocery names slammed. Retrieved June 16, 2017, from https://finance.yahoo.com/news/amazon-whole-foods-surge-mega-deal-grocery-names-slammed-165231689.html

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Stock Valuation and Analysis

Stock Valuation and Analysis: Amazon.com, Inc.

Introduction

Stock valuation is calculating the theoretical value of a company and their stocks. The

significance of stock valuation includes the ability to predict future market prices, and to profit to the pricing movements. During the stock valuation process, stocks are placed or judged based on two different categories; either undervalued or overvalued. Those stocks that are categorized as undervalued are bought. Overvalued stocks are sold, in hopes that undervalued stocks will increase in value. Overvalued stocks generally will decrease in value. An important role in fundamental financial analysis in this case, would be to make a comparison between companies that perform the either the same, or very similar activity, and are very close to the same size (Baresa 2013). The following discussion will answer questions as they relate to the stock valuation of Amazon.com, Inc., and analyze the findings based on the results.

Stock Valuation Statistics

1) Question: What is the ticker symbol for Amazon.com, Inc. Answer: AMZN.

2) Question: What is the Current Stock Price? Answer: $934.15 as of May 5, 2017 at 4 PM EST (Yahoo! Finance 2017).

3) Question: What is the Market Cap Stock Price? Answer: As of May 5, 2017, the Market Cap Stock Price for Amazon.com, Inc. is $446.50B (Yahoo! Finance 2017).

4) Question: What is the Price to Earnings Ratio? Answer: At the close of the 2016 fiscal period, Amazon.com, Inc.’s price to Earnings Ratio was $191.33.

5) Question: What is the Dividend and Yield? Answer: $0.00 and $0.00.

6) Question: What is the Enterprise Value? Answer: $440,930M (Yahoo! Finance 2017)

· In order for Amazon.com, Inc. to be bought, it would take $440,930M.

7) Question: What is the Beta? Answer: As of May 8, 2017 at 4:25 am EDT, Amazon’s Beta is 1.48.

8) Question: Was there a Stock Split, and if so, when? Answer: Yes.

9) Question: What was the closing stock price for the last 5 days? Answer: May 1, 2017–$948.23, May 2, 2017–$946.94, May 3, 2017–$941.03, May 4, 2017–$937.53, May 5, 2017–$934.15.

10) Question: What was the 52 Week High for this stock? Answer: $954.40

11) Question: What is the Book Value per Share? Answer: $45.34 (Yahoo! Finance 2017)

12) Question: What type of rating are analysts recommending? Answer: Strong Buy

13) Question: What is the target price analysts are predicting for this stock? Answer: The 12-month target price for Amazon based on 39 analysts is a median of $1080, with a high estimate of $1250, and a low estimate of $850 (Yahoo! Finance 2017).

14) Question: What is the analyst’s average revenue estimate for next year? Answer: Based on 36 financial analysts, the average estimate of revenue for Amazon.com, Inc. for June 2017 is $37.16B, with a high estimate of $37.74B, and a low estimate of $36.45B (Yahoo! Finance 2017).

15) Question: What are some of the significant news items and press releases made by the company over the last year? Answer: The following Press Releases and news have been announced by Amazon.com, Inc. since April 21, 2017:

· April 21, 2017: Amazon to create more than 2500 full-time jobs at three additional New Jersey fulfillment centers (Amazon 2017).

· April 27, 2017: Amazon announces 1st quarter sales up to $35.7B, an increase of 23% (Amazon 2017).

· May 1, 2017: Amazon gives Prime to every household in Manchester-by-the-Sea for one year, MA as Academy Award Winning Film comes to Prime Video (Amazon 2017).

Relationships between Stock Valuation Determinants

The stock price for a share of Amazon stock is currently $934.15, which means that in order to have just one share of Amazon stock, investors would need to purchase it at this price. The price to earnings ratio of $191.33 in relation to the current stock price indicates that while each share of Amazon.com, Inc. stock is $934.15, each investor is willing to pay $191.33 to gain $1.00 for each dollar of Amazon’s earnings.

The Market Capitalization of $446.50B is the market value of Amazon’s shares that remain outstanding. Investors are interested in the size of a company before they make any investments. The Market Capitalization also illustrates to investors how much of a risk they are taking when making such an investment. Amazon.com, Inc. is a large-cap company, as its Market Capitalization is more than $10B, which means that it is well-established. A beta of 1 shows that the price of a company’s stock moves with the market. If it is less than 1, then it is more volatile than the market. Conversely, a beta of more than 1 indicates a higher rate of return, but more of a risk. With a beta of 1.48, Amazon.com, Inc. illustrates that while there is a high rate of return, there is still great risk associated with investing in the company. This is true for most stock investments.

Reasons to Invest in Amazon.com, Inc.

Amazon.com, Inc. was created based on an investment of just $5,000. made by CEO, Jeff Bezos in 1997. As online retail sales grows into the primary method of shopping, Amazon is a name becomes more and more synonymous with the word, “shopping.” Amazon.com, Inc. continues to dismantle very popular physical retailers. Examples include JC Penny, Sears, Macy’s Kohl’s, Abercrombie & Fitch and the Office Depot, just to name a few. Amazon will continue to gain more and more traffic from e-commerce, which will ultimately lead to larger numbers of shareholders in the coming years. (Tenebruso 2017).

References

Amazon Gives Prime to Every Household in Manchester-by-the-Sea, Massachusetts As Academy

Award Winning Film Comes to Prime Video. (2017). Retrieved from:

http://www.businesswire.com/news/home/20170501005706/en/

Baresa, S., Bogdan, S., & Ivanovic, Z. (2013). STRATEGY OF STOCK VALUATION BY

FUNDAMENTAL ANALYSIS. UTMS Journal of Economics, 4(1), 45-51. Retrieved from

https://search.proquest.com/docview/1355477987?accountid=458

Caplinger, Dan. (March 2015). Why Don’t These Winning Stocks Pay Dividends? The Motley

Fool. Retrieved from:

https://www.fool.com/investing/general/2015/03/01/why-dont-

these-winning-stocks-pay-dividends.aspx

NASDAQ. (2017). Analyst Stock Recommendations. NASDAQ. Retrieved from

http://www.nasdaq.com/quotes/analyst-recommendations.aspx

Tenebruso, Joe (March 2017). 3 Great Reasons to Buy Amazon.com Stock. The Motley Fool.

Retrieved from:

https://www.fool.com/investing/2017/03/12/3-great-reasons-to-buy-

amazoncom-stock.aspx

Turner, Amy-Mae. 2011. Amazon.com Facts: 10 Things You Didn’t Know About the Web’s

Biggest Retailer. Mashable. Retrieved from

http://mashable.com/2011/07/22/facts-

amazon-com/#HISiDcyuBqqr

Yahoo! Finance. (2017). Amazon.com, Inc. Retrieved from:

https://finance.yahoo.com/quote/AMZN/news?p=AMZN