Amazon.com, Inc. (NASDAQ: AMZN) – Is Amazon Stock Overvalued Or Undervalued?

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Amazon.com, Inc. Stocks (NASDAQ: AMZN) lagged the S&P 500 in 2021, generating a cumulative total return of 4.7%.

Amazon continues to show impressive growth figures. But with a market cap of $ 1.72 trillion, some investors are wondering if there is any value left in Amazon stocks.

Earnings: A price-to-earnings (PE) ratio is one of the most basic fundamental measures to assess the value of a stock. The lower the PE, the higher the value. For comparison, the S&P 500 PE is currently around 34.6, more than double its long-term average of 15.9.

Amazon’s PE is currently 58.9. This number is well above the average for the S&P 500 as a whole. However, Amazon’s PE is actually down 23.7% over the past five years, suggesting that its earnings multiple is at the low end of its all-time range.

Related Link: Is Google Stock Overrated Or Undervalued?

Growth: Looking ahead to the next four quarters, the S&P 500 futures PE ratio looks much more reasonable at just 20.7. Unfortunately, Amazon’s forward earnings multiple of 50.4 is about 150% higher than the S&P 500 as a whole and makes Amazon stocks look relatively overvalued. It is even around 150% higher than its counterparts in the consumer discretionary sector, which average a forward earnings multiple of 20.2.

However, when it comes to valuing a stock, profits aren’t everything.

Growth rate is also critical for businesses that build their bottom line quickly. The price / earnings / growth ratio (PEG) is a good way to incorporate growth rates into the valuation process. The overall PEG of the S&P 500 is currently around 1; Amazon’s PEG is 1.65, a relatively attractive valuation for mega-cap tech stock.

The price-to-sales ratio is another important valuation metric, especially for unprofitable companies and growth stocks. The S&P 500’s SP ratio is currently 3.1, nearly double its long-term average of 1.62. Amazon’s PS ratio is 3.8 which isn’t exactly a good deal but relatively in line with the market as a whole.

Finally, Wall Street analysts are seeing impressive gains for Amazon stocks over the next 12 months. The average analyst price target among the 43 analysts covering Amazon is $ 4,105, which suggests an increase of about 20.3% from current levels.

The verdict: At its current price, Amazon stock appears to be overvalued on the basis of earnings alone, but after factoring in its impressive growth numbers, the stock appears to be valued correctly at today’s prices.

© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.


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