Whether you are looking to buy or sell Amazon stock, you need to be aware of its growth trends and the factors that could affect its value. In this article, we’ll discuss
the latest forecast for Amazon’s EPS growth and its Internet-Commerce industry.
Price to sales ratio has become more reasonable
Despite being a tad tooty tardy to the other dogs in the ecommerce department, the price to sales ratio of Amazon is currently sporting a nice round of golf. The company’s latest fiscal quarter prompted Amazon stockholders to restock the barter bins with an array of nifty baubles. The stock’s high-flying heavies are now on sale for well under the buck. The company’s fty to fty culture of employees can be viewed as a recipe for discontent, albeit in the best interest of shareholders. Fortunately, Amazon’s CEO Jeff Bezos has his fingers on the pulse and a slew of stock options to be had, and the price to sales ratio is the lowst of all.
Amazon's Internet-Commerce Industry is in the top 26% of over 250 Zacks Industries
Despite its monopoly status, Amazon has a plethora of competitors. A slew of lesser known startups are doing their best to compete with the retail behemoth. The biggest names in the industry have their licks of lipstick, and the competition is fierce. A few new entrants have already made their presence felt. A flurry of mergers and acquisitions has thrown a few names into the mix. The most notable are: Amazon, Google, Apple, Salesforce, Oracle, and Uber. The flurry of acquisitions has sped up a few new entrants’ arrivals and reduced the churn rate amongst the incumbents. It’s an interesting situation for the incumbents. Nonetheless, one has to wonder if any of the above echelons has made a dent in Amazon’s wallet. It would be prudent to evaluate a few of the new entrants before putting your hephty on the line.
Amazon's forecasted EPS growth
During the summer of 2017, Amazon’s stock was on the rise, but a series of events shook up the company’s stock price. The first was a 20-for-1 stock split in June. The second was a weaker-than-expected forecast for the second quarter of the year. As a result, Amazon’s stock fell 14% on the day of its quarterly financial results. It has now dropped more than half of its gains from last year. The stock trades at 30 times analysts’ forecasted EPS for the year. This may not be a bargain.
Investors are concerned that Amazon may be stalling its growth in the cloud computing sector. In the third quarter, Amazon’s Web Services division had the lowest quarterly operating income since the first quarter of 2018. In contrast, Microsoft’s Azure and Google Cloud grew faster.
Amazon’s stock price has fallen more than 35% so far this year. Investors are focusing on comparisons to the headier days of last year. But the company is still a leader in the cloud computing business. It continues to invest in its delivery and logistics network. It is also planning to hire 150,000 workers for the holiday season. Amazon is expected to generate $30 billion in EPS over the next three to five years. However, the company has reported a series of quarterly losses through the first half of the year. The company is still working to reduce costs, and management continues to worry about inflation. It is also susceptible to rising interest rates.
Investors have been concerned about the company’s ability to continue to generate profits. The company’s management has been working to lower costs in its fulfillment network. It also plans to increase the pay of fulfillment workers.
Amazon vs. MSFT
Despite being down 20% from its recent highs, Microsoft (MSFT -2.03%) has outperformed Amazon (AMZN -3.03%) by almost 35 percent over the past nine months. Microsoft has also outperformed AMZN by almost 17% in the last three months.
In the last quarter, Microsoft’s Intelligent Cloud business grew 23% to $15.1 billion. Most of Microsoft’s operating income came from this segment. It is expected to increase its spending on R&D by 50% to $30 billion.
MSFT is expected to grow sales by 12.1% in the next three years, and will grow earnings by 17.7%. MSFT also has a strong dividend. The company has been paying a dividend every quarter since 2003. Microsoft’s dividend has grown at an average rate of 5% over the past two decades.
MSFT has a strong balance sheet, and is expected to grow to $161 billion in cash by 2024. It has more cash than debt, and it has been paying quarterly dividends for over a decade.
In the last quarter, Microsoft reported revenue of $49.4 billion. Azure sales were up 50% year-over-year, and revenue in the Intelligent Cloud business was up 23%. Azure holds 21 percent of the cloud computing market.
The company plans to spend more than $150 billion over the next five years. It will increase its R&D spending by 50% from $19 billion to $30 billion. Microsoft will also spend more on growth. The company expects to increase its bottom line by 18% to 21% over the next five years.
Microsoft has a strong dividend and a low P/E ratio. It has a stable balance sheet, and it is expected to grow faster than Amazon. Its stock has also increased on news of increased revenue.
Amazon vs GOOG
GOOG (GOOG) and AMZN (Amazon) are two of the most influential technology companies on the planet. Each has a clear path to growth. However, which is the better stock split buy?
The truth is that both stocks have performed well over the past five years. The average investor doesn’t see the difference between the two. Alphabet (GOOG) has been stalking Amazon in e-commerce for years. It launched Shopping Express in 2013 and merged it into the new Google Shopping website in May. Despite the merger, Shopping Express never gained traction. Ultimately, Google will improve the shopping experience of Internet users and drive more traffic to sellers’ websites.
Amazon’s e-commerce business has slowed, which has masked the strength of its cloud computing segment. It has also been hit by tightening consumer spending. However, Amazon’s cloud computing segment is highly profitable, which should help it continue to grow in the long term.
Despite a slower year, Google has more cash on hand. The company’s balance sheet is clean and relatively free from any debt. This gives it greater flexibility to spend cash on new products and services in the future.
Google also offers Class A shares that give shareholders voting rights. These shares have performed well, and represent equal ownership in Alphabet. However, their potency is limited.
In comparison, Amazon’s stock has gained nearly 64% over the past two years, while GOOG has lost 20%. Its stock is now sitting below its 200-day moving average.
However, this does not mean that Google is oversold. Google’s stock has the potential to benefit from a change in its online shopping strategy. It could spend cash on new Pixel smartphones or on streaming video wars. However, it would also need to pay attention to its e-commerce partners.