Is Amazon worth its price? No matter how you measure it, this company is overpriced at levels not seen since the first unicorns were spotted in the Colorado Rockies. In fact, the valuation makes no logical sense at all.
Using predictive
technical analysis, we can analyze different prices and returns patterns and
diagnose historical swings to determine the real value of Amazon Inc. In general, sophisticated investors focus on analyzing Amazon stock price patterns and their correlations with different microeconomic environment and drivers. They apply predictive analytics to build Amazon's daily price indicators and compare them against related drivers such as
momentum indicators and various other types of predictive indicators. Using this methodology combined with a more conventional
technical analysis and
fundamental analysis, we attempt to find the most accurate representation of
Amazon's intrinsic value. In addition to deriving basic predictive indicators for Amazon, many experienced traders also check how macroeconomic factors affect Amazon price patterns. Please read more on our
technical analysis page or use our predictive modules below to complement your research.
Sophisticated investors, who have witnessed
many market ups and downs, anticipate that the market will even out over time. This tendency of Amazon's price to converge to an average value over time is called mean reversion. However, historically, high market prices usually discourage investors that believe in mean reversion to invest, while low prices are viewed as an opportunity to buy.
Please note, it is not enough to conduct a financial or market analysis of a single entity such as Amazon. Your research has to be compared to or analyzed against Amazon's peers to derive any actionable benefits. When done correctly, Amazon's competitive analysis will give you plenty of quantitative and qualitative data to validate your investment decisions or develop an entirely new strategy toward taking a position in Amazon Inc.
How does Amazon Stands against Peers?
Analyzing Amazon competition or peers my help you to expand the diversification possibilities of your existing portfolios and to get a better perspective on locking in new positions. Try to analyze the advantages of investing in traded instruments related to Amazon across multiple sectors and
thematic ideas. A good competitive analysis can cover a lot of different areas. But what areas to choose depends on who you are. The more exhaustive you are in your analysis, the more effective your competitive analysis will be. Check out
Amazon Competition DetailsAmazon Gross Profit
Amazon Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Amazon previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Amazon Gross Profit growth over the last 10 years. Please check Amazon's
gross profit and other
fundamental indicators for more details.
Breaking down Amazon Indicators
Amazon is a behemoth of a company. They are the world’s biggest online retailer by a long shot. Their revenue is roughly 105 billion. Yet, the barely make a profit. Their gross profits were only about 500 million for the year last year and that only got them earnings per share of $1.28. And, this is what is really eyebrow raising, their stock is trading at $800 per share. I had to look and relook at that about seven times until it finally sunk in. This stock is trading at a return on investment of almost .2%. That is 2-tenths of a percent. You could invest in a one year treasury bond and get a far better rate than that.
The total earnings per share over the past several years are as follows:
2011: $1.39
2012: -$0.09
2013: $0.59
2014: -$0.52
2015: $1.28
As these earnings show, there is not even consistent growth on a year-over-year basis. Instead, if you were to buy into this you would be buying the future earnings. But, given the earnings per share over the past several years, you can not even figure out with a reasonable amount of certainty what those future earnings are going to look like. And, the share price is so astronomically high as to being unrealistic beyond comprehension.
I wanted to look a lot deeper to see what else I might see. Here is a look at the revenue from the past several years:
2011: $48,077.0
2012: $61,093.0
2013: $74,452.0
2014: $88,988.0
2015: $107,006.0
All numbers in millions.
There is revenue and it is growing. But, the company would have to make a ton of more cash before it cold turn a decent amount of profit. Even if Amazon were to double its revenue that would not necessarily mean that the could double their profits per share. There may be some aspects of variable profits involved. Given that, even doubling the revenue would not necessarily mean that you could quadruple the earnings per share. And, even if that milestone was hit, that would only be $5.00 per share. That is still a tremendous way away from being realistic.
And, yet, the stock continues to go higher. Five years ago the stock was trading at $100 - $200 range. And, yet the profits were more than what they are now at $1.39 per share. So, in the course of five years there has been relatively no earnings per share growth. And yet the stock has multiplied by a factor of eight in that time period.
I keep a realistic perspective with my investments. You have to. But, every once in a while the market has something that defies logic. This company is one of those companies that defies convenient wisdom and instead acts like a Unicorn.
I have a very tough time recommending this stock to anyone. It would certainly not make it into my portfolio, at least not until there are some serious rebalancing moves from the stock and earnings side of this company. There are thousands of stocks to pick from. You are not required to choose a stock right this very minute and invest in. Instead, you have the ability to rely upon patience to sift through those thousands of companies. One of the things behind this stock is that it is popular. Investing in what you know is sage advice. But, just because you know the company does not necessarily make it a smart investment. I would think after looking at these numbers that would make sense to a lot of people.
Building efficient market-beating portfolios requires time, education, and a lot of computing power!
The Portfolio Architect is an AI-driven system that provides multiple benefits to our users by leveraging cutting-edge machine learning algorithms, statistical analysis, and predictive modeling to automate the process of asset selection and portfolio construction, saving time and reducing human error for individual and institutional investors.
Try AI Portfolio ArchitectEditorial Staff
David Taylor is a Senior Member of Macroaxis Editorial Board - Sector Analysis. David is a professional writer who writes for multiple investment news outlets. His primary focus is dynamic movements in financial markets and effects of economic volatility on North American industries and sectors. David has many years of experience in financial service industry including working with major banks as a FX trader. In his free time, he does a lot of outdoors type activities including rock climbing, mountain biking, hiking, mountaineering and kayaking in the summer, and snowboarding in the winter.
View Profile This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and David Taylor do not own shares of Amazon Inc. Please refer to our
Terms of Use for any information regarding our disclosure principles.
Would you like to provide feedback on the content of this article?
You can get in touch with us directly or send us a quick note via email to
editors@macroaxis.com