U.S. Markets open in 7 hrs 50 mins
  • S&P Futures

    -42.50 (-0.93%)
  • Dow Futures

    -63.00 (-0.18%)
  • Nasdaq Futures

    -301.00 (-1.88%)
  • Russell 2000 Futures

    -49.00 (-2.22%)
  • Crude Oil

    -0.28 (-0.42%)
  • Gold

    +21.40 (+1.22%)
  • Silver

    +0.25 (+1.12%)

    +0.0012 (+0.1019%)
  • 10-Yr Bond

    -0.1050 (-7.25%)
  • Vix

    +2.72 (+9.73%)

    -0.0067 (-0.5029%)

    -0.4090 (-0.3613%)

    -687.81 (-1.39%)
  • CMC Crypto 200

    -74.62 (-5.18%)
  • FTSE 100

    -6.89 (-0.10%)
  • Nikkei 225

    +276.20 (+1.00%)

Is Amazon's Stock Overvalued Or Undervalued?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Amazon.com, Inc. (NASDAQ: AMZN) shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 4.7%.

Amazon is still putting up impressive growth numbers. But with a $1.72 trillion market cap, some investors are wondering if there’s any value left in Amazon stock.

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

Amazon’s PE is currently 58.9. That number is well above the S&P 500 average as a whole. However, Amazon’s PE is actually down 23.7% over the past five years, suggesting its earnings multiple is on the low end of its historical range.

Related Link: Is Google's Stock Overvalued Or Undervalued?

Growth: Looking ahead to the next four quarters, the S&P 500’s forward 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 stock look relatively overvalued. It’s even roughly 150% higher than its consumer cyclical sector peers that are averaging a 20.2 forward earnings multiple.

However, when it comes to evaluating a stock, earnings aren't everything.

Growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1; Amazon’s PEG is 1.65, a relatively attractive valuation for a megacap tech stock.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.1, nearly twice its long-term average of 1.62. Amazon’s PS ratio is 3.8, not exactly a bargain value but relatively in-line with the market as a whole.

Finally, Wall Street analysts see impressive gains for Amazon shares over the next 12 months. The average analyst price target among the 43 analysts covering Amazon is $4,105, suggesting about 20.3% upside from current levels.

The Verdict: At its current price, Amazon stock appears to be overvalued based on earnings alone, but after factoring in its impressive growth numbers the stock seems appropriately valued at today’s prices.

See more from Benzinga

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