I’ve been a customer of Amazon for over a decade. It’s easy to shop everything and has good prices. Today I dusted off my old Amazon Kindle Keyboard from 2010 (?). It’s still working fine and I hope I can do some reading this weekend.
Amazon.com Inc is a leading online retailer and one of the highest-grossing e-commerce aggregators, with $386 billion in net sales and approximately $482 billion in estimated physical/digital online gross merchandise volume, or GMV, in 2020. Retail related revenue represented approximately 83% of total, followed by Amazon Web Services’ cloud computing, storage, database, and other offerings (12%), and advertising services and cobranded credit cards (6%). International segments constituted 27% of Amazon’s non-AWS sales in 2020, led by Germany, the United Kingdom, and Japan.Description from www.nordnet.se
Monster stocks have a tendency of going sideways for long periods before continuing up. Lets have a look at the numbers.
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The numbers analysis below is the first step in Rule 1 Investing by Phil Town. In his book Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! (no affiliate) he writes about his investing philosophy which centers around four key principles he refers to as the Four M’s: Meaning, Moat, Management and Margin of Safety.
The first requirement is an average annual growth rate of at least 10%, the past 10 years, in the ROIC (Return On Invested Capital), Sales, EPS (Earnings Per Share), Equity and Cash Flow. The average 5 year and 1 year growth rates should also be above 10%. High growth rates suggest a sustainable MOAT.
Next step is to analyze the the Four M’s: Meaning, Moat, Management and Margin of Safety.
The aim is to find a fantastic company, with a great track record, to invest in for at least 10 year. The expected average yearly return is at least 15%. This is used in the calculations. With an investment of 100 USD and a yearly return of 15%, 100 USD will have increased to 405 USD in 10 years time because of interest-on-interest or compound interest.
|Operational cash flow (MUSD)||631||-39||274||-241||596|
|Operational cash flow (MUSD)||2371||3033||10073||11588||21331|
ROIC and P/E are gurufocus.com. The rest are from macrotrends.com
|Yearly average||10 year||5 year||1 year|
|Sales Growth Rate||26%||30%||38%|
|EPS Growth Rate||46%||71%||82%|
|Equity Growth Rate||32%||48%||51%|
|Cash Flow Growth Rate||48%||73%||84%|
|Growth ratesx2||Average||Median P/E||Average between the high and low P/E|
|Calculated future price in 10 years||42994||77389||53742||60460|
|Margin of Safety (50%)||5374||9674||6718||7558|
Current price: 3300 USD
Fair value price range: 10748 – 19347 USD
MoS price range: 5374 – 9674 USD
To be considered for further analysis here, as a growth stock, the requirement is that the 10 year yearly average growth rate is at least 5% in all five categories. They are.
The growth rates look really good. The 1 and 5 -year ones have picked up pace. Almost every time I do this rule 1 calculations they are off the charts in these kind of companies with high growth rates. I don’t know what to make of it. It is the fifth largest company by market cap in the world ($1.671 T). Can it grow more? Why not?
Will I buy it? Not sure.