Should You Buy Amazon Stock? Analysts prefer it to other Big Tech companies

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Amazon.com Inc. tends to be one of the most sought after companies on MarketWatch. This quarterly review of Amazon stocks will show comparisons of key metrics to watch and a summary of the company’s biggest issues to help investors make better decisions.

These updates will also include comparisons of results with those of the competition. Keep in mind that no two companies are the same, not even rivals compete across the board. Any investor needs to do their own research to make informed long-term decisions. Where Amazon fits into Amazon AMZN, + 2.04% is the world’s third-largest publicly traded company, behind tech giants Apple Inc. AAPL, + 0.30% and Microsoft Corp. MSFT, + 0.15%. (Read MarketWatch’s quarterly update on key metrics for Apple and Microsoft.) But unlike the other two companies that have pretty definite tastes, Apple is an icon in consumer hardware and Microsoft is the gold standard in business software, Amazon is not that easy to categorize. . It started as “the largest bookstore on Earth,” according to an initial slogan, before becoming a store for everything and, more recently, a leader in cloud computing, thanks to its Amazon Web Services division. Key metrics There are some similarities between AMZN and other “big tech” rivals, but a look at their segments shows the unique nature of their massive operations. Amazon.com’s North American consumer sales include e-commerce transactions as well as sales at its physical Whole Foods stores that were acquired in 2017. Anything sold outside of North America is classified into its international segment. However, both segments exclude Amazon Web Services, which provides on-demand cloud computing and related services. Sales Growth What’s particularly interesting about Amazon is the extent to which these segments vary in revenue and profitability trends. When you look at just revenue, North American sales are the line of business to look out for, accounting for roughly 60% of the total top line today, and they’re still growing rapidly.

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Pricing power and profitability However, when you look at the bottom line impacts, the comparatively small arm of AWS that accounts for only about 10% of sales generates a whopping 52% of total operating income, due to the juicy margins on this. high-tech service arm. .

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The international segment is operating at a modest loss as Amazon invests in growth plans abroad. Partly because of this, AMZN has the lowest operating margin among Big Tech stocks. In fact, its fourth-quarter report shows that overall margins had declined further from a year earlier. So while Amazon has an astonishing track record of expanding sales, it is important to understand that it is also investing a great deal of capital in these expansion efforts that ultimately offset the relatively large profit margins in the AWS segment. smaller and more focused.

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Free Cash Flow Beyond earnings and sales, many investors are interested in cash flow generation metrics. Simply put, this figure is a sign of how much cash a business is generating after paying the costs of doing business. And depending on the specific nature of Big Tech stocks, from Amazon to Apple, free cash flow can vary significantly. The good news for Amazon investors is that while the returns can be slim at times, there is a ton of cash moving. As a result, it has the second highest free cash flow per share among its peers in the last 12 months. Here’s a comparison of the six companies’ changes in free cash flow per share during the last 12 months reported from the 12-month period of the prior year, along with the free cash flow returns for the last 12 months, based on closing prices of the shares on April 26. :

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Stock valuation and performance Following a more traditional valuation model, here are the price-earnings (P / E) valuations for the top six technology stocks, based on consensus earnings estimates for the next 12 months among the analysts surveyed. by FactSet, along with total return figures as of April 26.

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Once again, you will see that the large investments in Amazon and its comparatively lower returns are reflected. AMZN has the highest P / E in the group, but investors should remember that people have been smearing Amazon based on this metric for years and that hasn’t stopped the stocks from consistently outperforming. Apple also has the highest percentage of “buy” or equivalent ratings among this beloved group of companies. Wall Street Opinion Here is a summary of the opinion of Wall Street analysts surveyed by FactSet:

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As a group, analysts who work for brokerages love Big Tech stocks. But Amazon is above all of them with almost universal support among all experts who cover the stocks. Also, the upside potential based on the 12-month average price target is 18%, the highest in this group. These are estimates only, of course, and there is no guarantee that AMZN will get there. But the consensus of optimism among Wall Street firms is remarkable nonetheless. Important Dates April 29: Amazon reports first quarter results. May 26: Amazon’s annual shareholders meeting. With information from Philip van Doorn.