Stock Valuation: Inc. (AMZN)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price    
AMAZON.COM INC US/NAS Consumer Cyclical – Retail – Apparel & Specialty – Specialty Retail USD1612.87    
@ 31 May 2018    
COMPANY PROFILE Inc is an online retailer. The Company sells its products through the website which provides services, such as advertising services and co-branded credit card agreements. It also offers electronic devices like Kindle e-readers and Fire tablets.

Amazon is among the world’s highest-grossing online retailers, with $178 billion in net sales and $320 billion in estimated GMV in 2017. Online retail sales accounted for 61% of net revenue in 2017, followed by third-party seller services (18%), Amazon Web Services (10%), Prime membership fees and other subscription-based services (6%), Whole Foods and other retail formats (3%), and advertising/cobranded credit cards (3%). International segments totaled 33% of Amazon’s non-AWS sales in 2017.

Stock Code AMZN    
Stock Valuation Below                    

The Price to Sales Ratio is a commonly used valuation indicator for a stock. While not as popular as the Price to Earnings Ratio, it overcomes some of the limitations of the PE Ratio in that it can be used even when the company is not making a profit or only making minimal profits. However, it should not be used by itself because a company may be achieving sales but not profits. 
At the price of USD1612.87 as at 31 May 2018, Amazon.Com Inc is trading at a Price to Sales Ratio of 3.8 times last 12 months sales.  This is a 63.0%  premium to its historical average Price to Sales Ratio of 2.4 times.  Is the stock overvalued?
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued. 
To find out more about our valuation methodology, click here.             
Source of Data: Price to Sales chart is from ProThinker Stock Report. Company description, historical financial statements data and price data are from Estimates are from gurufocus and/or – Thomson Reuters.
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