Amazon INC. (The stock abbreviated as AMZN)

A lot of factors influence the choice to ignore, purchase, sell, or keep a stock. They include the stock’s prior performance, the current price, and the state of the market/economy. It also depends on the organization’s previous and predicted profitability, as well as unforeseen social, political, economic, and natural environmental elements. The investor can compute the return on equity (ROE), potential for growth, and discount rate, among other things, using some of the above parameters. A stock’s previous performance can be used to forecast how it will perform in the future. For instance, if a stock is trading at the lowest price in 52 weeks, this may signal a swing low, which is a point at which it may begin to raise in value, and vice versa. Resultantly, traders are advised to take a long position (buy the stock) to sell at some later point, the opposite is true. This analyst report looks into whether it is advisable to buy, sell, hold or ignore Amazon Inc. stock, based on top-down approach including the sectorial analysis, market performance and firms past and current. The report will look into the performance of the US economy, the online trading sector and the performance of company Amazon Inc.

Acid-test ratio is: ATR = (Income in cash + Income in Accounts Receivable + income in Short-term Investments) / Current Liabilities. The latest financial accounts are those of 2016, Amazon Inc. (Financial accounts of 2017 will be released when the year is over).

Earnings in cash $19.33 billion

Earnings from account receivable = $8.34 billion,

Earnings from short term Investment =$8.34 billion

Current liabilities = 43.82 (Reuters 1)

Therefore, ATR = (19.33+8.34+6.65)/43.82 =0.7832040164

Its current liabilities are higher that current income. Hence the organization may face liquidity problems. Resultantly, AMZN stocks under this condition are unattractive. This would be a good time to sell.

Amazon.com (AMZN)

Online Trading

Value

Price

52-Week High

52-Week Low

Beta

P/E

Cap

Date

Valuable long-term investment

$1162.35

$1,213.38

$736.74

1.48

63.14

$560,104.12

01/12/2017

Table 1: The table above contains the breakdown of Amazon stocks in 1st of December, 2017 (Reuters 1).

The price of stock on that day was very close to its 52week high. This means it is close to a swing high point. Therefore, it is unlikely to grow for long before starting to decline.

ROE= Net Income/ stockholder’s equity

Year

Worth(Value)

Present worth at 17.03%

Calculation {TVT *(1*growth rate)}

FCFEt or Terminal Worth(Value) (TVT)

01(2011)

-FCFE0(2011)

5,966.00

1

-FCFE1

=5,282.00

5,966 × (1 + 3.61%) =

6,181.00

2

-FCFE2

=4,814.00

6,181 × (1 + 6.65%) =

6,592.00

3

-FCFE3

=4,512.00

6,592 × (1 + 9.69%) =

7,231.00

4

-FCFE4

=4,347.00

7,231 × (1 + 12.74%) =

8,152.00

5

-FCFE5

=4,300.00

8,152 × (1 + 15.78%) =

9,439 .00

5

-Terminal Value TV 5

(9,439 × (1 + 15.78%) ÷ (17.03% – 15.78%) =

878,525 .00

Intrinsic (worth)value of AMZN.com’s common shares

$423,523.00

Intrinsic value of AMZN.com’s common share (per unit )

$878.91

Current

$1,152.35

AMZN.Inc. share valuation using free cashflow

Using the above estimation that is based calculation of Amazons Inc.’s intrinsic value; its intrinsic value is lower than its stocks market price. As a result, the stock is highly overvalued. This means that the value of stock is likely to fall in 2018 if all factors are held constant. This means that an investor who purchases this stock at this price is likely to lose money by having to sell it at a lower price.

Traditionally, investors interested in AMZN Inc. have banked their investment on the firm’s incessant expansion in capital. Amazon Inc. has been increasing its operations in terms of capital invested, which expands its operations and hence its revenue. Q3 of 2017 has seen a situation where investors have lost confidence in this model reducing their investment. Similarly, the firm made lose in Q3 which undermines investor confidence. This makes it hard to obtain additional capital. Resultantly, lack of capital to expand its operation is likely to hinder its growth of intrinsic value.

Conclusion

AMZN Inc. is not an attractive investment option. First, the firm has not been issuing dividend. Therefore, this reduces attractiveness to investors looking for stock that earns dividend. Secondly, looking at the stocks’ cycle, it is very close to its annual highest. Therefore, this stock is most likely to break and start falling. Thus, an investor who purchases this stock at the current price is likely to sell them at lower prices, which constitutes loss of a percentage of the investor’s initial investment. Finally, estimation of AMZN Inc.’s intrinsic value shows that it is lower than the current prices. This shows that the stock is highly overvalued (by over 2 hundreds of dollars). This is an arithmetic way of showing that the price of this tock is most likely to fall in the future. Due to all the above facts, it is advisable for those investors that have not purchased AMZN Inc. to ignore it, and those that have had bought it to sell.

Works Cited

Reuters., (2017). Amazon.com Inc. Reuters.com. 1st December, 2017, https://www.reuters.com/finance/stocks/financial-highlights/AMZN.OQ [accessed 4th December 4, 2017]

Özdemir, Hüseyin. The effect of financial ratios and macro factors on BIST-30 index returns. MS thesis. Doğuş Üniversitesi Sosyal Bilimler Enstitüsü, 2017.

Appendix

Acid-test ratio is: ATR = (Income in cash + Income in Accounts Receivable + income in Short-term Investments)

Amazon.com (AMZN)

Online Trading

Value

Price

52-Week High

52-Week Low

Beta

P/E

Cap

Date

Valuable long-term investment

$1162.35

$1,213.38

$736.74

1.48

63.14

$560,104.12

01/12/2017

Year

Worth(Value)

Present worth at 17.03%

Calculation {TVT *(1*growth rate)}

FCFEt or Terminal Worth(Value) (TVT)

01(2011)

-FCFE0(2011)

5,966.00

1

-FCFE1

=5,282.00

5,966 × (1 + 3.61%) =

6,181.00

2

-FCFE2

=4,814.00

6,181 × (1 + 6.65%) =

6,592.00

3

-FCFE3

=4,512.00

6,592 × (1 + 9.69%) =

7,231.00

4

-FCFE4

=4,347.00

7,231 × (1 + 12.74%) =

8,152.00

5

-FCFE5

=4,300.00

8,152 × (1 + 15.78%) =

9,439 .00

5

-Terminal Value TV 5

(9,439 × (1 + 15.78%) ÷ (17.03% – 15.78%) =

878,525 .00

Intrinsic (worth)value of AMZN.com’s common shares

$423,523.00

Intrinsic value of AMZN.com’s common share (per unit )

$878.91

Current

$1,152.35

AMZN.Inc. share valuation using free cashflow