OVERVIEW OF AMAZON Case Solution
In contrast, Amazon owns a large portion of the inventory that it sells on its websites however, it is also moving towards the market’s business model. Third-party owned units accounted for around 45% of all paid units sold during the most recent quarterly results. This varied business model also displays lower profitability, given the degree to which Amazon competes on price. In addition, it is considered that the company is undertaking various investments in several growth strategies (such as Prime, content, cloud services, etc.), hence its margins cannot be directly compared to those of eBay and Alibaba. It is believed that Amazon’s market price is almost fairly-valued presently, as the company’s top-line outlook over the next 5-10 years looks quite strong. It has been estimated that the company will gain market share over the coming years, in both the U.S. as well as in the international online retail market. At the same time, an improvement in profitability will lead to the generation of significant cash flows over the long-run.
Amazon has no dividend policy and this is the main reason the company had cash and equivalents of $8.7 billion by 12/31/13.
Recently, Amazon generated $1,719 million in adjusted free cash flow, or cash from operations minus capex minus the cost of acquisitions. The dividend coverage ratio is the free cash flow over the dividend. As a dividend investor, I expect a dividend coverage ratio of greater than 1.6x. A dividend growth investor might prefer ratios greater than 2x, indicating that the company has the capacity to pay a steadily rising dividend. In order to calculate the amount that Amazon could pay as a dividend, the formula which I used is:Adjusted free cash flow / Dividend > 1.6Or, $1,719 million / Dividend > 1.6. In other words, Amazon could pay, at most, a dividend of about $1,074 million. Distributed over the 465 million diluted shares outstanding at FYE 13, this indicates that one of the largest online retailers could pay an annual dividend of $2.30 per share. This amounts to a 0.6% dividend yield given the$337 current share price.
RECOMMENDATIONS TO BUY SHARES IN AMAZON
As of July 7, 2016, Amazon had generated returns of 68.7% in the trailing-12-month period and 1.8% in the trailing-one-month period. Amazon’s share price has risen by 2.9% in the trailing-five-day period.Amazon’s peers such as Alibaba, eBay, and Google have witnessed their share prices increase by 1.7%, 2.7%, and 1.6%, respectively in the trailing-five-day period.On July 7, Amazon’s last trading price was $736.57. The company’s stock was traded at 2.8% more than its 20-day moving average of $716.41, 5.0% more its 50-day moving average of $701.67, and 15.0% more than its 100-day moving average of $640.28.
MACD (moving average convergence divergence) is the difference between a company’s short-term and long-term moving averages. Amazon’s 14-day MACD of 5.5 shows an upward trading trend, as the figure is positive.
Amazon’s 14days relative strength index (or RSI) is 63, which shows that the stock is somewhat overbought. The RSI figure of above 70 indicates that the stock has been overbought. TheRSI figure below 30 suggests that the stock has been oversold.Out of the 46 analysts covering Amazon, 40 of them have given the recommendation to buy, none have given recommendations to sell, and six have given the recommendation to hold.The analysts’ stock price target for Amazon is $821.09 with a median target estimate of $800. Moreover, Amazon is trading at a discount of nearly 7.9% to its median target………………..
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