Assignment:
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.