Barron's: Amazon Close To 'Fair' Valuation
- Amazon.com, Inc. (NASDAQ: AMZN) shares have lost 29 percent since January 4.
- Barron's Jack Hough said that the company’s shares appear “more tempting,” following the recent pullback.
Amazon’s share price “looks almost reasonable,” journalist Jack Hough commented. While shares have lost 26 percent year-to-date, this is not the only reason. He added that the reason certainly was not a mall executive getting “ahead of himself” last week, projecting that the company would open hundreds of physical stores.
“Amazon recently began operating at a small but quickly growing profit, and is providing more details on the performance of its fast-¬growing and lucrative cloud services business. This year the company is expected to earn close to $5 a share, versus an amount last year that’s not worth mentioning,” Hough wrote.
Although Amazon’s shares could be trading for more than 100 times that figure, what matters is how much earnings the company could generate once chief Jeff Bezos “hoverboards down to accounting and turns up the profit dial,” the journalist said.
The Street projects earnings of more than $28 a share by 2020, and FCF per share could “climb even higher, in part because Amazon sells through merchandise so quickly it collects payments faster than it pays suppliers, creating, so long as it’s growing, an ongoing float of surplus cash,” Hough pointed out.
Taking into account the 2020 profits projected by analysts, Amazon’s share price appears reasonable. "Of course, the estimates could be too optimistic, and investors paying $502 for shares today are surely hoping for $1,000 by 2020, which means even if the estimates prove accurate, Amazon will still have to be growing briskly by the end of the decade to justify a premium valuation,” the article mentioned.
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