In recent weeks, the world has been closely watching the Tesla share price as investors rallied, pushing the stock into all-time highs before quickly correcting at $750. However, the E-commerce giant Amazon has also been smashing records this week getting as high as $2183.00 on Tuesday 12th of February. This has caused some concern whether or not it is too late to enter Amazon for capital gain in the near future. So let’s breakdown some fundamentals and formulate a concrete decision.
What is the Fair value of Amazon?
In some cases, when a stock becomes popular to the mainstream investor and a rally begins to build behind a stock – it can cause the stock to be overvalued. Stocks can be valued through different methods, some as simple as the Discount Cashflow method or using the P/E ratio. These methods are not very reliable, and should only be used in sequence with other methods and extensive research. However, to see if Amazon is overpriced it is worthwhile finding a fair evaluation. An article written by the Trefis team states “a fair value of $2,218″ for Amazon stock currently found on the Nasdaq website.
“Our Price Estimate of $2,281 for Amazon’s Stock is based on our Detailed Valuation Model for Amazon and implies an 82.7x P/E Multiple on expected 2020 EPS of $26.83. Trefis Team
This indicates that there may still be room for growth and possibly a chance to capitilise on Amazon shares.
Internal efficiency and opportunity
Amazon beat it’s forecasted earnings report and in-turn created an opening for investors to get in before the stock was set to rise again. Amazon is internally exceptional, with a $1 Trillion valuation and more than 150 million Prime members it is hard to fault the E-commerce giant. Amazon have prioritised their profits effectively forecasting to save $2.3 billion in depreciation expense. The most exciting aspect IMO, is that Amazon is beginning to take Market share away from Google and Facebook regarding advertisement revenue. Amazon made $4.8 billion in Advertisement revenue in 2019 on it’s platform and poses a new threat to the Google/Facebook advertisement Oligopoly.
Before we evaluate the evidence and make a concrete decision, I am advised to ask all viewers to do their own research before making any investment decision.
From both the valuation and looking at Amazon’s internal figures and opportunities in 2020, it seems that Amazon still has significant room to grow not only in 2020 but in decades to come. Evaluating today’s current price opening at 2,150.80 USD +16.89 . As an investor, I would be tempted at $2,060 USD however this price may not come around for sometime. I would this stock in your watchlist and find the exact price you want to enter with your own research and understanding of the markets.
Here is our free, uncomplicated, and extensive ASX portfolio
If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.
The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Tyger Fitzpatrick, founder of YIG.