On Monday I looked at Wal-Mart (WMT) and on Tuesday I examined Target Corp. (TGT). Today I will peer under the hood of Amazon.com (AMZN). I can tell you now that I don’t like what I see.
Amazon.com (AMZN)
Share price: $190.07
Shares: 454.75 million
Market capitalization: $86.434 billion
Bonds: Amazon has no outstanding bonds.
DIVIDEND RECORD – That’s easy; there is none. Amazon has never paid a dividend.
EARNING POWER - $1.55 per share @ 454.75 million shares
(earnings adjusted for changes in capitalization – Amazon has slowly added a few million shares over the years)
EPS Net inc. Shares Adj. EPS
2006 $0.45 $190 M 424 M $0.42
2007 $1.12 $476 M 424 M $1.05
2008 $1.49 $645 M 432 M $1.42
2009 $2.04 $902 M 442 M $1.98
2010 $2.53 $1,152 M 456 M $2.53
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2011Q1 $0.44 $201 M 454.75 M $0.44
2011Q2 $0.41 $191 M 454.75 M $0.41
2011Q3 $0.14 $93 M 454.75 M $0.14
2011Q4 (est) http://www.forbes.com/sites/josephhargett/2011/10/26/amazon-com-plunges-after-forecasting-potential-4q-loss/
Five year average adjusted earnings (2006-2010) was $1.48 per share. This will be slightly lower with a 2011 reduction in EPS.
Consider contrarian buying below $11.84 (8 times avg. adjusted EPS)
Consider value buying below $17.76 (12 times avg. adjusted EPS)
Consider speculative selling above $29.60 (20 time avg. adjusted EPS)
Amazon.com is trading at 128 times average adjusted earnings. This is insanely SPECULATIVELY priced. A 4th quarter 2011 loss will devastate the stock price.
BALANCE SHEET – Shareholder equity has started to stagnate. Amazon.com shares are speculatively overpriced for the equity they actually possess. New Amazon investors are paying over 11 times the total equity per share. The price to book value ratio should by down around 1 or 2 for something resembling value investing.
Book value per share: $17.08
Price to book value: 11.26 (this is very bad)
Current ratio: 1.33 (Okay, over 2.0 is good)
Quick ratio: 0.70 (Okay, over 1.0 is good)
CONCLUSION – Amazon.com is speculatively priced at over 128 time average adjusted earnings. The company pays no dividend and has never paid a dividend. It has an average adjusted earning power of $1.48 per share. I wouldn’t even consider this stock until it drops to below $17.76 which is 12 times average adjusted earnings. The balance sheet is okay, but the stock is way overpriced. This company might be a good stock to short in this declining market (especially if it loses money in the 4th quarter of 2011). Wal-Mart and Target both provide superior rewards with less risk of principal going forward. People that are going long on Amazon.com right now are insane.
DISCLOSURE – I don’t own Amazon.com (AMZN) stock.
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