AMZN just hit a 52-week low ..time to buy?

Published on eTor on mid January, 22 and selected as pin-post by eToro editors


To answer that I’d like to look from a different perspective: Enterprise Value. Enterprise Value (EV) gives the aggregate value of a firm as an enterprise. It is calculated as follows:

So it really is a useful metric to asses the health of a company. As of the time of writing $AMZN (Amazon) has a market capitalization of $ 1550 billion and an EV of $ 1570 billion. The price is $ 2852 per stock.

The company accountants divide the revenue flows in three parts:

- North America
 [responsible for 60% of sales | mean y growth of 22%]

- International [responsible for 28% of sales | mean y growth of 36%]

- AWS [responsible for 12% of sales | mean y growth of 37%].

Calculating fair value

I calculated AMZN fair value with a discounted cash flow method (DCF) but based on Enterprise Value (EV). All data used are publicly available.

Given the complexity of the Company (and the fact I like to cover as many blind spots as possible), I simulated TWO scenarios:
- Euphoric scenario (in green)
- Low multiples scenario (in blue).
Values used as growth rates are presented in the image attached.

To add some contest the higher the “discount rate”, the more conservative the estimate. Assuming to hold the company for the following 10 years, we discounted the value it will have the 10th year all the way back to these days (Current Value of Future FCF).
The resulting Enterprise Value is quite interesting:
- $ 1703 billions (or + 8.5% from current) (in green)
- $ 882 billions (or - 43.8% from current) (in blue).

Obviously these numbers alone don’t tell the full story. A big “if” regards the FCF the Company will declare for FY2021, if higher than 25.9 billion of dollars, then the value will go way up! So, shall we buy or forget about these overpriced Company? I personally think the FY 2021 FCF will be higher than expected as the Company is moving toward optimizing its resources.

Disclosure: I am/we are long AMZN.