Amazon (AMZN) is one of the top five companies in the United States that is working in the information technology industry. The company focuses on e-commerce, AI, digital streaming, and cloud computing. Headquartered in Seattle, Washington, the company was founded in 1994, and since then, its team has grown marginally.
In 2020, the multinational company had 1,298,000 employees working in either full-time or part-time capacity. In the same year, Amazon also reported total net revenue of $386 billion. Its offices are located in 36 different countries, with the total number of locations reaching 235.
I am bullish on Amazon as it has strong growth potential, a wide moat, a discounted valuation, unanimous Wall Street bullishness, and substantial upside relative to its one-year price target.
Strengths
Amazon has tapped into three different but equally vast industries, including retail, internet, and consumer electronics industries. It has a significant global footprint, with Amazon Marketplace serving 17 countries in total.
Between 2018 and 2019, the company saw a massive increase in its revenues and profits, a 20.5% and 15% increase, respectively. Its low price structures, significant number of third-party sellers, and the largest merchandise selection have earned it the rightful place in the market.
It has created unrivaled synergies between four different marketplaces through the various businesses it runs, including Marketplace, Prime, Web Services, and Subscription services. The technological advancements have allowed the company to cope with larger capacities and enhance customer satisfaction at a fraction of the costs.
Recent Results
Amazon’s net sales reached $386 billion in the year ended December 31, 2020. In 2019, the net sales were at $280.5 billion, which means the total year-over-year growth percentage for 2020 was approximately 38%.
Net income increased from $11.59 billion in 2019 to $21.33 billion in 2020. Additionally, the cash and cash equivalents at the end of the year also increased from $36.1 billion to $42.27 billion in 2020.
The basic earnings per share and diluted earnings per share reached $42.64 and $41.83, respectively. The year before that, these numbers stood at $23.46 and $23.01, respectively
Valuation Metrics
AMZN stock looks attractively valued at the moment. It currently trades at a 22.3x forward enterprise value-to-EBITDA ratio, which looks quite reasonable compared to its historical average of 23.1x. Furthermore, its forward price-to-normalized-earnings ratio of 83.3x is well below its historical average of 100.5x.
Meanwhile, growth is expected to be strong in the coming years, with EBITDA expected to grow by 23% in 2022 and normalized earnings-per-share expected to grow by 28.9% in 2022.
Wall Street’s Take
According to Wall Street analysts, AMZN earns a Strong Buy consensus rating based on 30 Buy ratings and no Hold or Sell ratings assigned in the past three months. Additionally, the average Amazon price target of $4,137.5 puts the upside potential at 31.7%.
Summary and Conclusions
Amazon is a leader across many industries, including e-commerce, cloud computing, and artificial intelligence. It has a wide moat with a vaunted logistics infrastructure underpinning its dominant online presence. Given that it operates in innovative and disruptive industries, it has a lengthy growth runway that makes its current valuation multiples look very reasonable.
On top of that, Wall Street is unanimously bullish on the stock, and the average price target implies substantial upside for the share price over the next year. As a result, it looks like it might be a good time to add shares.
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