Amazon.com, Inc Stock Is Near Its All Time High, Should You Buy Now?

 

Amazon.com, Inc (AMZN) Stock Is Near Its All Time High, Should You Buy Now
Flickr

AMZN stock has hit its all-time high. Can Amazon.com, Inc stock continue to rally?

Amazon.com, Inc (NASDAQ:AMZN) has been one of the greatest generators of shareholder wealth ever. Amazon stock has returned around 60% over the last one year, 360% over the last five years and an astounding 2100% over the last ten years. The eye-popping performance of the stock has made its founder and CEO, Jeff Bezos, one of the richest people in the world, with a current net worth of $74 billion. While the stock has faced many hiccups, it has been able to bounce back each time. Recently, the company reported a miss on the top line, following which the stock sold off 3%. However, the stock has gained almost 5% since then, reaching its all-time high of $847.27 on Friday. The question is whether Amazon stock will continue to go up or not?

Why value investors avoid Amazon.com stock.

First, let's look at the risks. Amazon is an expensive stock with slowing revenue growth, high debt, high reinvestment need and low-profit margins. These were the main reasons why most of the value investors missed the Amazon party. And they are likely to stay away from AMZN stock for now. Amazon stock is currently trading at a PE (ttm) ratio of 173! While the forward PE ratio is much better, it's still very high at 84x 2017 earnings. Even the PEG ratio which takes into account earnings growth is at 3.02. A PEG ratio above 1 indicates that the stock is overvalued.

For the most part of its existence, the company has churned out losses year after year. Even now, Amazon's net margin is a paltry 1.7%. And on top of that, the company has a huge amount of debt. According to the company's latest 10K filing, Amazon has around $20.2 billion in debt and $19.2 billion in shareholder equity, giving it a debt to equity ratio of 1.04. High leverage adds considerable risk to the stock. More importantly, given its current size, Amazon will not be able to maintain its tremendous revenue growth going forward. For a richly valued growth company, a slowdown in revenue growth could have serious consequences for the stock. Case in point, the stock market reaction after the recent earnings. Amazon reported a beat on both operating profit and earnings per share. However, the stock sold off 3% because of the miss on revenues.

1 2 3
View single page >> |

Disclosure: Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.