Executive Summary
Amazon’s capital constraints indicate the demand for robust financial leverage following the low-interest rates levels introduced by Federal Reserve as a financial policy after the 2008 financial crisis. Bond issuance, as well as acquiring debts, will greatly influence the company’s capital structure and investment capacity. The eCommerce and retail industry news have not been favourable for most long-term investors of the past few years. Although Amazon Inc. is no exception, the company’s investors have received commendable rewards by the start of the financial year 2019, with the stock price increased by about 32%. The general retail sector, however, reported a decline of about -8%. Major players in the traditional sales include Kroger, Casey’s General Stores, Walgreens Boots Alliance, Autozone, and Nutrisystem.
Regarding the eCommerce retail sector, Amazon is not listed among the traditional retail giants classified under SPDR S&P Retail ETF-XRT. Analysts’ recommendations highlight that investors should buy Amazon’s stock. The current performance, according to industry analysts, is overvalued. The analysts do not recommend holding or selling stocks. The market and company analysis place Amazon at a significant spot of slowly increasing revenues. The key performance indices and sustained margin expansion describe the company’s benefit from constant efficiency improvements, although the organization has reported an expensive change to Prime Day. Ratio analysis, for example, market value ratios, indicate that Amazon had 72.34 price-earnings ratio (with extraordinary items, 3.22 price to sales ratio, 34.27 Enterprise Value to EBITDA, and 24.44 Price to Cash Flow. The ratios above highlight that it is profitable to invest in Amazon’s stocks, especially if the investment is made at the current stock price.
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Introduction to and Background on the Company
Amazon’s current business operation involves the annual Prime Day to boost membership as well as the company value. According to industry analysts, however, Amazon should emphasize on serving brands (Sundaram, 2019). Establishing Prime membership as the current operation ensures that the company creates robust shareholder value. The first 24 hours of the global day-prime resulted in the biggest one-day sales in Amazon’s history (Sundaram, 2019). In this regard, the slowing growth of Amazon will require it to heighten its customer lifetime value.
Based on the strong financial performance of Amazon, analysts have advised customers to buy the company shares. Competition in the eCommerce industry has always been enhanced by companies such as Walmart, Flipkart, Costco, Best Buy, Etsy, Home Depot, and eBay. Despite the stiff competition from organisations such as eBay, Amazon has performed favourably over the years. The company shares increased by 32% in 2019 fiscal year compared to S&P 500 price, which increased by only 20% (Bloom, 2019). The important metrics to consider according to analysts’ claims indicate robust performance in valuation and profitability ratios as depicted in operating income, revenue growth, and growth margin. The asset management ratios such as Asset Turnover and Inventory Turnover indicate the company’s ability to replace the sold operations that will fund operations. Amazon’s profitability ratios of 13.52 return on invested capital, 15.44 return on total capital, 6.85 return on assets, 28.27 return on equity, and 40.25 gross margins further indicate profitable future for long-term investors (Market Watch, 2019).
As an analyst, amazon is interesting because of the nature of the ecommerce retail sector. Determining the direction of ecommerce is exciting because of the unexpected issues that may challenge profitability, for instance, the rise of new entrants with unique entry strategies. Amazon’s recent outperformance, however, has overlooked other challenges such a regulatory scrutiny and revenue deceleration.
References
Market Watch. (2019). Amazon Inc.: Analyst estimates. Retrieved from https://www.marketwatch.com/investing/stock/amzn/analystestimates
Sundaram, A. (2019, July 16). ‘Amazon is not brand-friendly – analysts break down the firm’s weaknesses and strengths on Prime Day. CNBC. Retrieved from https://www.cnbc.com/2019/07/16/analysts-break-down-amazon-weaknesses-and-strengths-on-prime-day.html
Bloom, M. (2019, July 25). Here’s what major analysts predict will happen with Amazon’s earning report. CNBC. Retrieved from https://www.cnbc.com/2019/07/25/major-analysts-predict-amazons-earnings-report.html
