Amazon Inc.

Weekly Valuation: Amazon Inc.  – Valutico | 13 June 2022

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Amazon (AMZN) competes head-to-head for market share with some of the largest corporations in the world. While Amazon started out as an online retailer of books, it has grown over the decades to become the largest e-commerce company by revenue in the United States.

 

The company now executed a stock split – those are popular with companies whose share prices are comparatively high. In order to make a single share more attractive for retail investors who can only deploy small tickets. Amazon has now carried out this step for the fourth time. In 1998 a split was carried out at a ratio of 1:2, then in January 1999 at a ratio of 1:3. In September of the same year another share split was on the agenda, this time again at a ratio of 1:3. This year’s 1:20 split is the most significant one so far.

 

After the end of US trading on Friday, 19 additional Amazon shares were booked into the securities account of every Amazon shareholder who owned a share at a certain point in time. Thus, Amazon shares ended Friday’s trading on the NASDAQ at 2,447 US dollars. This price is now divided by 20 and thus one Amazon share is worth "only" 122.35 US dollars on a closing price basis.

 

Splits often have a positive effect on the share price. Take Apple, for example: in the summer of 2014, the iPhone maker's stock was trading 6% higher at a ratio of 1:4 six weeks after the split, while the S&P 500 was up only 1.5%. Netflix carried out a 1:7 split in July 2015. Six weeks later, the stock stood 15 % higher than before. Meanwhile, the market fell 6%. Nvidia’s shares climbed as much as 20% after their split in July 2021.

 

Bank of America analysts found that stocks rose an average of 25.4% in the 12 months after a split was first announced. Amazon shares fell 25% after the announcement on 9 March. If the market environment remains friendly, Amazon could play out its post-split catch-up potential.

 

Closing price of the Amazon share is recalculated

After the end of US trading on Friday, 19 additional Amazon shares were booked into the securities account of every Amazon shareholder who owned a share at a certain point in time. Thus, Amazon shares ended Friday trading on the NASDAQ at 2,447 US dollars. This price is now divided by 20 and thus one Amazon share is worth 122.35 US dollars on a closing price basis.

 

Our DCF analysis indicates that the stock might be somewhat undervalued, however, peer analysis suggests that Amazon is overvalued compared to its peers. This divergence again speaks to the uncertainty in the market. With the current market cap between the DCF and peer analysis, we conclude that Amazon is likely fairly valued at present.

 

Link to valuation: click here

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