Estimates Show a Windfall of Profits Coming Amazon’s Way

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$534

Sector
Technology
Data is as of
February 18, 2016
Expected to Report
Apr 21 – Apr 25
Company Description
amazon_kindle_fireAmazon.com, Inc. (Amazon.com) is an e-commerce company. The Company’s products are offered through consumer-facing Websites, which include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It designs its Websites to enable products to be sold by the Company and by third parties across various product categories. It also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. Amazon.com operates in two segments: North America and International. The North America segment focuses on retail sales earned through North America-focused Websites. The International segment focuses on the Company’s operations done through its international Websites. It serves developers and enterprises through Amazon Web Services (AWS). It serves authors and independent publishers with Kindle Direct Publishing. Source: Thomson Financial
Sharek’s Take
David SharekAmazon.com (AMZN) had a big earnings miss last qtr, but yet profits rose 122% year-over-year as sales increased 22%. After the dust settled profit estimates decreased across the board, but triple-digit profit growth is still expected in each of the next 4 qtrs. In addition, annual profits are expected to climb from $1.25 last year to $4.50 this year, $8.51 in 2017 and $15.65 in 2018. If this happens this stock could benefit in a big way. But that’s a big if as AMZN historically lowers estimates as it spends to grow. Amazon’s big money-maker is Amazon Web Services (AWS) which has been great for profits. Recently, the company disclosed it is taking many shipping aspects in-house, such sea freight from Asia and trucking between fulfilment centers, which could help profitability as well. This year AMZN sold off hard along with the stock market, and investors dumped growth stocks. But now the stock seems to have stabilized. With an estimated long-term growth rate of 41% per year, this is a top growth stock. When investors return to appreciate growth stocks again, AMZN could be a big benefactor.
One Year Chart
AMZN_2016_Q1Here’s the one-year view of AMZN. The stock went on a tear last year, corrected this year, and now seems to have settled down between $500 and $550. I’m excited about the qtrly profit estimates, here’s what analysts expect the next 4 qtrs: +575%, +405%, +412%, +119%. Although the P/E of 119 is high, the stock sells for 63x 2017 estimates and 34x 2018’s. The Est. LTG of 41% is excellent.
Fair Value
AMZN_2016_Q1_PHI put my Fair Value on this stock at 75x earnings, which makes the stock overvalued right now, but undervalued when we look at 2017 estimates. It’s been my experience that stock’s tend to start to look ahead to next year’s numbers starting in November.
Bottom Line
AMZN_2016_Q1_10yrAmazon’s corrected after a big run higher, and now looks to have stabilized. Investors have recently shunned growth stocks in search of safety. Eventually, these investors will once again seek out growth and invest in growth stock mutual funds. AMZN could be a big benefactor when that happens. Also, estimates show a windfall of profits coming AMZN’s way, and if that occurs it will make headlines. AMZN ranks 5th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings
Power Rankings
Growth Stock Portfolio

5 of 39

Aggressive Growth Portfolio

5 of 16

Conservative Stock Portfolio

N/A