Amazon.com (NASDAQ: AMZN)
Quality Value Investing Research Report | $AMZN Updated Coverage | June 2024
Summary:
Amazon.com, Inc. is a non-dividend-paying large-cap stock in the consumer discretionary sector’s broadline retail industry.
A wide economic moat surrounds an underperforming business model in the context of share buybacks and returns on invested capital.
Amazon’s enterprise and share price downside risks each rate below average, although analyzing its current wealth and present value produces mixed results.
In this updated research report, QVI reiterates its coverage rating of the company and its stock in the Concentrated Real-Time Stock Picks.
When referencing this research report, access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets and Research Report Format Guide. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on June 12, 2024, and intended for illustration only.
In this updated coverage QVI Research Report, we’ll reexamine the Concentrated Real-Time Stock Picks consumer discretionary sector holding, Amazon.com Inc., to see if it continues to meet Quality Value Investing’s criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.
Amazon.com: Company Current Wealth
Value Proposition
Amazon.com, Inc. AMZN 0.00%↑is a non-dividend-paying large-cap stock in the consumer discretionary sector’s broadline retail industry. It was added to the QVI Real-Time Stock Picks on March 7, 2022, at $137.45 cost basis per share, adjusted for a 20-to-1 stock split.
Amazon.com, Inc. engages in the retail sale of consumer products, advertising, and subscription services through online and physical stores in North America and internationally.
The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Amazon.com, Inc. was incorporated in 1994 and is headquartered in Seattle, Washington, USA.
Economic Moat
Morningstar assigns Amazon.com a wide moat rating weighted toward the company’s network effects, cost advantages, intangible assets, and switching costs.
QVI’s Value Proposition Elevator Pitch for AMZN:
Amazon enjoys retail market dominance, including the ever-growing reliance of businesses on AWS, consumers and small businesses on Prime, and authors and book buyers on KDP.
QVI’s value proposition rating for Amazon.com: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the chart below, Amazon.com’s trailing three-year annualized revenue growth was double-digits positive, outperforming the consumer discretionary sector’s +2.24% median growth. The company’s topline growth was +12.54% for the most recently reported twelve months.
Farther down the income statement, Amazon.com’s three-year, mid-single-digits positive net profit margin aligned with the sector’s median net margin of +4.78%.
Returns on Equity and Invested Capital
Amazon.com’s senior management produced a three-year double-digit return on equity, or ROE, at QVI’s targeted threshold and ahead of the sector’s median ROE of +11.55%.
Stock buyback programs often elevate ROE. For example, in 2022, Amazon’s board of directors announced a $10 billion share repurchase program. However, the company has exercised only about half of that ceiling thus far. Are they avoiding buying back the total allocation of shares because of concerns about valuation? The valuation section later in this report might answer that question.
Amazon.com’s three-year return on invested capital, or ROIC, was below QVI’s threshold but above the sector’s median ROIC of +6.22%. However, AMZN’s ROIC barely exceeded its weighted average cost of capital, or WACC, of 11.74%, demonstrating that its senior executives are struggling with capital allocation. (Source of WACC: GuruFocus)
QVI’s business fundamentals rating for Amazon.com: Neutral.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.
Disclosure: At the time of this writing, I/we had a beneficial long position in AMZN common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.