Join our Waitlist for Expert Advice!

AMZN After the Split: Buy, Sell, Or Hold? E-commerce giant Amazon.com (AMZN) completed its much talked about 20-for-1 stock split on June 06, 2022, which led its shares to trade below $1000 for the first time since 2017....

By Pragya Pandey

This story originally appeared on StockNews

shutterstock.com - StockNews

E-commerce giant Amazon.com (AMZN) completed its much talked about 20-for-1 stock split on June 06, 2022, which led its shares to trade below $1000 for the first time since 2017. However, given its premium valuation and rising operational challenges, is it worth owning the stock now? Let's find out.

The e-commerce giant Amazon.com Inc. (AMZN) sells consumer products and subscriptions internationally. It operates through North America; International; and Amazon Web Services. Its shares have declined 39.1% over the past year and 36.3% year-to-date to close the last trading session at $106.22.

AMZN completed its 20-for-1 stock split, which went into effect on June 6, 2022, after being announced in March. It marks the company's first stock split since 1999 and the fourth since AMZN went public in 1997.

However, the stock has not witnessed any significant momentum. It closed its last trading session way below its pre-split price of $2000. Higher inflation knocked on AMZN's profitability in the first quarter. And according to management, the difficulty may extend longer than the company anticipated earlier in the year.

Here's what could shape AMZN's performance in the near term:

Poor Bottom-line Performance

AMZN's total net sales increased 7.3% year-over-year to $116.45 billion for the first quarter ended March 31, 2022. However, its operating income declined 58.6% from the prior-year quarter to $3.67 billion. The company reported a net loss of $3.84 billion, compared to a net income of $8.10 billion in the prior-year quarter. In addition, its net cash used in operating activities came in at $2.79 billion for the three months ended March 31, 2022.

Low Profitability

AMZN's trailing-12-month net income margin of 4.48% is 31.7% lower than the industry average of 6.6%. Also, its trailing-12-month ROA, ROC, and EBIT margin are 7.4%, 30.6%, and 53.8%, lower than their respective industry averages. Moreover, its trailing-12-month negative levered FCF margin of 1.9% compares to its industry average of 3.41%.

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 128.02x, 1088.7% higher than the industry average of 10.77x. Also, its forward EV/Sales of 2.21x is 116.5% higher than the industry average of 1.02x. Moreover, AMZN's forward Price/Book of 6.38x is 190.6% higher than the industry average of 2.19x.

POWR Ratings Reflect Bleak Outlook

AMZN has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AMZN has a D grade for Growth and Value. The company's poor bottom-line performance and low profitability are consistent with the Growth grade. In addition, its higher-than-industry valuation is in sync with the Value grade.

Of the 66 stocks in the F-rated Internet industry, AMZN is ranked #47.

Beyond what I've stated above, you can view AMZN ratings for Stability, Momentum, Quality, and Sentiment here.

Bottom Line

Supply chain bottlenecks and inflationary pressures are projected to hurt AMZN's e-commerce operations in the current quarter. Moreover, despite the stock split, AMZN is presently trading at a hefty premium to its peers. So, we think the stock is best avoided now.

How Does Amazon.com (AMZN) Stack Up Against its Peers?

While AMZN has an overall D rating, one might want to consider its industry peers, Yelp Inc. (YELP), which has an overall A (Strong Buy) and trivago N.V. (TRVG), and Travelzoo (TZOO), which have an overall B (Buy) rating.


AMZN shares fell $106.22 (-100.00%) in premarket trading Tuesday. Year-to-date, AMZN has declined -35.27%, versus a -21.58% rise in the benchmark S&P 500 index during the same period.



About the Author: Pragya Pandey


Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...

The post AMZN After the Split: Buy, Sell, Or Hold? appeared first on StockNews.com

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

At 16, She Started a Side Hustle While 'Stuck at Home.' Now It's on Track to Earn Over $3.1 Million This Year.

Evangelina Petrakis, 21, was in high school when she posted on social media for fun — then realized a business opportunity.

Health & Wellness

I'm a CEO, Founder and Father of 2 — Here Are 3 Practices That Help Me Maintain My Sanity.

This is a combination of active practices that I've put together over a decade of my intense entrepreneurial journey.

Business News

Remote Work Enthusiast Kevin O'Leary Does TV Appearance Wearing Suit Jacket, Tie and Pajama Bottoms

"Shark Tank" star Kevin O'Leary looks all business—until you see the wide view.

Business News

Are Apple Smart Glasses in the Works? Apple Is Eyeing Meta's Ran-Ban Success Story, According to a New Report.

Meta has sold more than 700,000 pairs of smart glasses, with demand even ahead of supply at one point.

Money & Finance

The 'Richest' U.S. City Probably Isn't Where You Think It Is

It's not located in New York or California.

Business News

Hybrid Workers Were Put to the Test Against Fully In-Office Employees — Here's Who Came Out On Top

Productivity barely changed whether employees were in the office or not. However, hybrid workers reported better job satisfaction than in-office workers.