Is Amazon Stock Overvalued or Undervalued?

Is Amazon overvalues or undervalued

There is no doubt that Amazon shares are something that everyone looks for and are interested in buying. But based on the performance of the stock last year, a lot of people are in a dilemma if they should go for it or not.

In the past year, the amazon stock has quite underperformed and has approximately returned the 0.37% return only. Well, this was certainly shocking for a lot of people and it made people ask if the stock is worth the price or if there is anything left in this stock to invest in.

Amazon is still showing some good growth numbers. It has a market capital of 2.33 trillion dollars which is why some investors need to know if anything is remaining to invest in or if it could gain them any profit.

Is Amazon Stock Overvalued?

According to its current market price, Amazon’s stock seems overvalued. But this can not only be decided based on the earnings. But if you consider other factors like the growth number or growth rate in mind, the stock will seem valued in the current scenario.

Earnings

The very fundamental metric that one must look for before buying any stock is the Price to earning ratio. So, if your PE is lower, the higher price of your stock will rise. When it comes to S&P 500, its PE is currently at 26.1. This is approximately double the average of 15.9.

Talking about Amazon, its current PE is 61.1. This is certainly much above the PE of S&P. But according to Amazon’s past performance, the PE has reduced by approximately 62.8% in the last five years. This implies that the earnings multiple has somewhat decreased in recent years.

Growth

Well, when analyzed for the next year, it is estimated that the PE ratio of S&P will reasonably be at 20.8. Whereas, when it comes to Amazon, the forward earnings multiple is around 60.1. T

his is approximately 200% more than S&P. This makes it look overvalued sometimes. Moreover, when compared to the cyclical Sector peers, it is approximately 100% more. It averages around 30.6.

Surely we can not say everything based on the earnings. 

Another thing that you will have to consider is the growth rate. The price-to-earnings to growth ratio is another way to incorporate the growth rate of the company while evaluating the shares.

When analyzing the S&P 500 PEG, it is approximately 1. When compared, Amazon’s PEG is around 1.7. If you see according to PEG, Amazon stocks seem a pretty deal.

Other than this, another thing that most people look for is the price to sales. This metric is usually used to evaluate unprofitable companies. Currently, the PS ratio of S&P is 3.14 which is also twice its average. When talking about Amazon, the current PS is 3.4 which seems decent according to the market.

Many analysts have analyzed that the value of Amazon stocks will grow in the next year. The average price analyzed is 4100& which is 31% more than the current value.

Also Read: Why Is Tesla Stock So Expensive?

Conclusion

As we have mentioned, there are chances that the price of the Amazon stock will increase with time. And if you ask if it is overvalued, Somewhere YES.

If you consider the PE ratio, it seems overvalued but when it comes to other factors, the stock has performed in-line as per the market.