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2021-05-17

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Peak Amazon? Not A Chance

Summary Amazon is still growing at enormous rates despite its dominance. The stock is rangebound bu

Peak Amazon? Not A Chance

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":195395704,"tweetId":"195395704","gmtCreate":1621256096408,"gmtModify":1631890393985,"author":{"id":3579872518315300,"idStr":"3579872518315300","authorId":3579872518315300,"authorIdStr":"3579872518315300","name":"xiaoace","avatar":"https://static.tigerbbs.com/4a66892271adfc54b4e9dc0159e0f2ee","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":3,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>wow</body></html>","htmlText":"<html><head></head><body>wow</body></html>","text":"wow","highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":2,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/195395704","repostId":1175983556,"repostType":4,"repost":{"id":"1175983556","kind":"news","pubTimestamp":1621255998,"share":"https://www.laohu8.com/m/news/1175983556?lang=&edition=full","pubTime":"2021-05-17 20:53","market":"us","language":"en","title":"Peak Amazon? Not A Chance","url":"https://stock-news.laohu8.com/highlight/detail?id=1175983556","media":"seekingalpha","summary":"Summary\n\nAmazon is still growing at enormous rates despite its dominance.\nThe stock is rangebound bu","content":"Summary\n<ul>\n <li>Amazon is still growing at enormous rates despite its dominance.</li>\n <li>The stock is rangebound but that is for good reason.</li>\n <li>Amazon will break out to the upside after its consolidation period ends.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/451bc93115fb453c0fcb76434c40f7f4\" tg-width=\"1536\" tg-height=\"1024\">Photo by Sundry Photography/iStock Editorial via Getty Images\nI have to admit I was intrigued by a piece I saw last week by&nbsp;Mott Capital&nbsp;stating&nbsp;Amazon(AMZN) had peaked and that lower prices were ahead. Amazon is, unquestionably, one of the greatest growth stocks that have ever existed. The company started with very humble beginnings a couple of decades ago and is one of the largest companies in the world today. While that means Amazon is a proven winner, it also means potential growth from current levels – in percentage terms – is obviously going to be lower than it was in 2000 when Amazon was still a niche business. Today, it is a do-everything-for-everyone conglomerate of goods and services just about anyone can use, and the idea that it has peaked seems a bit absurd. Permit me to explain.\nLet’s begin with a daily chart, which does in fact show some signs of weakness, which the author of the bearish article fairly states.\n<img src=\"https://static.tigerbbs.com/60e814824b4cff14fde4b94b3b39c5ed\" tg-width=\"640\" tg-height=\"714\">Source: StockCharts\nWe can see that Amazon is nearly a year into a consolidation pattern following a very large run-up in the middle of last year. The stock has tried to break out but failed, and we can see very clear support at ~$2,900, and very clear resistance at ~$3,550. Those are the lines in the sand until one of them breaks, and as we’ll see below, I firmly believe the one that breaks is resistant to the upside.\nThe rest of this chart isn’t pretty, and I want to be fair about that. The stock has vastly underperformed the S&amp;P 500 during this period of consolidation, which you’d expect given Amazon has been treading water while the broader market makes new records.\nThe accumulation/distribution line is ugly, showing sustained, albeit slow distribution since the August peak of $3,552. That means the dip buyers aren’t out, and that sellers are ruling the day on more occasions than not.\nOn a positive note, the two momentum indicators I’ve got here – the PPO and the 14-day RSI – are both showing positive momentum as the relative bottoms are both meaningfully higher than they were during the last episode of selling. This guarantees nothing, but momentum movements such as this can be early signs of a new rally beginning.\nThe bottom line on the daily chart is that things are messy and until there is a sustained break of either $2,900 or $3,550, we are rangebound.\nHowever, if we zoom out to a weekly chart, I think the picture is much more bullish, and argues that Amazon still remains a leading stock for long-term investors.\n<img src=\"https://static.tigerbbs.com/0d6f568240ac1fa628f878323ed6e718\" tg-width=\"640\" tg-height=\"714\">Source: StockCharts\nWe can see the consolidation period is merely a cooling off period after a torrid gain where one of the world’s largest companies more than doubled in the space of a few months. This kind of consolidation occurs for leading stocks when they blow away the market for a period of time, which Amazon certainly did last year. I’ve circled that outperformance in the panel above for reference.\nSecond, the weekly accumulation/distribution line is showing very little in terms of weakness, and merely shows a bit of consolidation.\nMore importantly, however, is that the PPO has seen a massive reset during the past several months, falling from extremely overbought levels of +12 back to very near its centerline. Again, this is very normal behavior for a leading stock that is in a period of consolidation. Perhaps more than anything, this makes me very bullish on Amazon because this is textbook behavior after a big rally, and it means momentum has cooled to the point where buyers can and often do step in again.\nThe point of this lengthy technical picture was to make the point that on a short-term chart, Amazon is indeed messy. But on a long-term basis, that is just noise and I see this period of consolidation resolving firmly to the upside. When that will happen is up for debate, but the idea that Amazon has peaked isn’t supported by the long-term chart in any way.\nNow, let’s take a look at how the business will support this eventual breakout on a fundamental basis.\nA winning tradition\nAmazon, as I said above, is one of the greatest growth stories the world has ever seen. Even just five years ago, the company produced less than $150 billion in revenue, but is expected to nearly 4X that in 2022.\n<img src=\"https://static.tigerbbs.com/f0a6df487aafd20845236173ce97dc65\" tg-width=\"640\" tg-height=\"264\">Source: Seeking Alpha\nThat’s not $150millionto $600 million, that’s “billion” with a “b”.\nThe story is even better with earnings, because for years the bears said that because Amazon wasn’t earning any profits, the stock was overvalued. I know this because I’ll admit to being one of them. I was wrong, and so was every other bear, end of the story.\n<img src=\"https://static.tigerbbs.com/4652a01315f533d504ef51efabbc9a82\" tg-width=\"640\" tg-height=\"311\">Source: Seeking Alpha\nEarnings were basically nothing in 2017 and, next year, are expected to be in excess of $70 per share. That’s what happens when a company achieves high levels of operating leverage, and that is exactly what Amazon has done. Below, we’ll also see that this strength is a very long way from being one-sided; Amazon is winning just about everywhere, and that bodes well for the stock irrespective of economic and competitive conditions.\nThe core North America segment makes up the bulk of the company’s revenue, and that makes sense given this is the part of the business most consumers are familiar with; a catalog of millions of products at your fingertips, and at your door in a day or two in most cases.\n<img src=\"https://static.tigerbbs.com/bdd8f3fcd88cd04bbf9a386a255699ed\" tg-width=\"640\" tg-height=\"425\">Source: Company presentation\nThis segment lapped the first pandemic-impacted quarter with a 40% sales gain and a staggering 163% operating income gain for Q1 2021, showing the beauty of operating leverage. We know Q4 produces the most revenue for this segment and it always will, given the holiday shopping season. But even with lower revenue, the company’s Q1 operating profit soared well in excess of Q4 2020, a fact that I think unequivocally supports the bull case. If we look at Q1 of last year, it was the worst in terms of revenue and operating profits. If that’s how 2021 turns out, look out above.\nThe international business is still in its relative infancy in terms of producing revenue, but still sported a 60% gain in Q1.\n<img src=\"https://static.tigerbbs.com/b7d72a34cec1f40bef8ebe3178dae08b\" tg-width=\"640\" tg-height=\"432\">Source: Company presentation\nThat’s important, but more important is that the international business has begun consistently making money for Amazon. Last year showed a relatively small profit for the year, but this year's Q1 was gangbusters, producing a 4%+ operating margin. As the international business continues to grow, Amazon’s operating leverage will continue to increase, and we’ll see ever-higher operating profits. This will almost certainly always be Amazon’s third-best segment, but the fact that it has the potential to be a profit center in the near future is exciting. And keep in mind Amazon is simply following the playbook of the ultra-successful North America segment, so the path forward isn't difficult to imagine.\nFinally, the big one, AWS.\n<img src=\"https://static.tigerbbs.com/25bb7674d5931c2d9277a5a8e2e0edfa\" tg-width=\"640\" tg-height=\"424\">Source: Company presentation\nI say it’s the big one not because of its revenue generation, but because of its profit. It has been well-publicized for years that AWS is the future for Amazon, and it hasn’t disappointed. We know cloud computing is a massive business that is growing rapidly, and almost certainly will continue to do so for the foreseeable future. And that is showing up in Amazon’s results.\nHere’s a look at the public cloud services end-user spending market globally to give us an idea of how quickly the market is growing.\n<img src=\"https://static.tigerbbs.com/4dfb002ccb84e057e9a64d70b456b6db\" tg-width=\"640\" tg-height=\"415\">Source: Statista\nWe’re looking at ~22% annual growth for this market from 2017 actuals to 2022 projections. For a market this large, that sort of growth is staggering, but cloud computing offers so many benefits to users over on-premise that this was sort of inevitable.\nThe good news is that Amazon is already the leader in cloud infrastructure, and by a wide margin.\n<img src=\"https://static.tigerbbs.com/a89a434f1acd4661b784c13e85822482\" tg-width=\"640\" tg-height=\"640\">Source: Statista\nThe big names are all here but Amazon’s market share leadership is absolute. It owns about a third of the total pie, and this is a market that is growing rapidly. As Amazon continues to gain scale on an absolute and relative basis, we should see already-high margins move up as the top line expands. The years of heavy investment in this segment have paid off in a huge way, and will almost certainly continue to do so for many years to come. Owning massive market share in a rapidly-growing market creates a virtuous cycle of high revenue and profit growth rates.\nIn short, Amazon is not only the leader in digital retail, but it is the leader in cloud infrastructure services. That’s a truly amazing thing to think about in a single company.\nMargins and cash\nAll of that success has come with benefits, including much higher margins and better free cash flow generation. Let’s take a look at margins first, which we can see below.\n<img src=\"https://static.tigerbbs.com/3bb3f6f6e1622d639aed4e37e902608f\" tg-width=\"640\" tg-height=\"384\">Source: TIKR.com\nThese are trailing-twelve-months looks at gross profit, operating expenses, and resulting operating margins for the past several years. We can see that the blue bar never dips quarter-over-quarter in this period, meaning Amazon has managed to produce higher gross profit every quarter on a TTM basis. With expenses growing less quickly on a dollar basis, that means the green line – operating margins – has continued to move higher.\nQ1’s results showed a TTM operating margin of more than 7%, a new high, and if I’m right about a rapidly-growing cloud market and continued dominance in digital retail, there is no reason this number will not continue to rise over time.\nIn addition, Amazon has continued to produce strong free cash flow despite tens of billions of dollars of investments over the years.\n<img src=\"https://static.tigerbbs.com/548c127bb68f75684305c6fd6d34d151\" tg-width=\"640\" tg-height=\"162\">Source: TIKR.com\nHere we have operating cash flows and capex, the two components of FCF. Capex continues to rise rapidly, but keep in mind that Amazon is investing for future growth, as it always has, and not for optimizing the next quarter’s numbers. If anything, this level of spending – along with Amazon’s track record of betting big on future winners – bolsters the growth case.\nEven so, FCF for the TTM period ending Q4 2020 was ~$26 billion. That leaves Amazon plenty to invest in essentially whatever it wants, but the company’s cash situation is actually much better than that due to its world-class cash conversion cycle.\n<img src=\"https://static.tigerbbs.com/d4702346d78cbd00ccbfb893fc28b4ac\" tg-width=\"640\" tg-height=\"166\">Source: TIKR.com\nAmazon has always been masterful at stringing its vendors along with long payment terms while it demands much better terms from its accounts receivable. In practice, that looks like the above, where Amazon has essentially ~40 days of sales floating at any particular time, which is free financing. At this year’s projected $489 billion in sales, 40 days is ~11% of the year, or ~$53 billion in interest-free financing the company receives from its CCC. That means that looking at FCF by itself is only part of the picture, because Amazon has this massive source of interest-free cash floating around at all times.\nLet’s value this thing\nAll of this is great but we have to know how much we can pay for the stock and make it worth our while.\n<img src=\"https://static.tigerbbs.com/e2d3aa2804e36d68885960673aa0c543\" tg-width=\"545\" tg-height=\"268\">Source: Seeking Alpha\nWe’ll start with sales to give us a baseline of where the company’s top line is going. We can see the top line is expected to grow in the mid-teens for the foreseeable future, and that Amazon is on pace to hit atrilliondollars in revenue in 2026.\n<img src=\"https://static.tigerbbs.com/5cb96582e384c41ab501d6b340ea6263\" tg-width=\"640\" tg-height=\"289\">Source: Seeking Alpha\nBut that’s not all; the company’s revenue revisions have been unbelievably bullish in recent years, as we can see all of the lines move steadily up and to the right. I always want a stock I own to have this sort of characteristic because it means the company is a perennial outperformer, causing analysts to constantly play catch-up to the upside. Consider that when the pandemic started, 2026 revenue estimates were for ~$680 billion. Just over a year later, that number has been revised up more than $300 billion. That doesn’t sound like a stock that has peaked to me.\nAnd the story is the same with EPS.\n<img src=\"https://static.tigerbbs.com/b92d76f9187c8e51b491043ac114d19e\" tg-width=\"526\" tg-height=\"271\">Source: Seeking Alpha\nEPS is slated to grow at ~2X the rate of revenue, which is the product of the operating leverage I spent some time on earlier. This is what operating leverage looks like in practice and with ~7% operating margins, Amazon is just getting started.\n<img src=\"https://static.tigerbbs.com/5e40d696f0978da0df41c1f714b91db6\" tg-width=\"640\" tg-height=\"285\">Source: Seeking Alpha\nI won’t belabor the above points but if we continue our example of comparing the pre-pandemic 2026 estimates to today, we see EPS was $116 and today, is $208. Again, I struggle to understand how this is a stock that has peaked when there is so much growth yet to come.\nNow, there are lots of ways to value a stock like Amazon, so we’ll look at three that I think shows an increasingly favorable valuation. We’ll begin with EV to sales.\n<img src=\"https://static.tigerbbs.com/8fc29ce16131fa941ffdef07e28545d6\" tg-width=\"640\" tg-height=\"191\">Source: TIKR.com\nOn this measure, Amazon wasveryexpensive last summer as it was flying higher. The ratio reached a high of 4.5X, and in the last five years, has averaged 3.1X. Today, the stock is at 3.2X forward sales, which is essentially in line with the long-term average. Is it cheap on this measure? Probably not. Is it expensive and showing signs of a top?Absolutely&nbsp;not.\nNext, let’s take a look at the market cap to FCF.\n<img src=\"https://static.tigerbbs.com/5ce9a7cf6365fe5b3e459aad1318fff9\" tg-width=\"640\" tg-height=\"189\">Source: TIKR.com\nThe story is a little different here as we can see that Amazon’s peak was lower in a relative sense than it was for EV/S, and the move down has been more muted as well. Still, shares trade at 37X FCF today against an average of 34X, and a peak of 49X. Again, is it cheap on this basis? Probably not. Is it showing signs of excess? No.\nFinally, perhaps the biggest feather in the cap of the bulls is that Amazon is finally trading with a more reasonable price-to-earnings ratio.\n<img src=\"https://static.tigerbbs.com/7c3ef87e7dd73fe063f15bef5be7f757\" tg-width=\"640\" tg-height=\"189\">Source: TIKR.com\nIn fact, Amazon’s average P/E ratio for the past five years is 105, and a high was achieved of 227. Today, shares are at 56X forward earnings, and while that is expensive if you’re comparing Amazon to blue chips or utilities, on a relative basis, thisdoesmake the stock cheap. And keep in mind that as EPS estimates are slated for ~30% growth for the foreseeable future - either this line continues lower, or the stock price comes up. Given the stock is already at its low P/E ratio today, I have a very difficult time believing investors will just stop paying for that growth.\nFinal thoughts\nWhile I respect the author’s opinion and viewpoint, I certainly do not agree. There is more than enough evidence that Amazon is winning today in a variety of ways, it will almost certainly continue to win tomorrow, and the stock is cheaper on a P/E basis than it nearly ever has been before. When the current consolidation ends, the break is going to be to the upside.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Peak Amazon? Not A Chance</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPeak Amazon? Not A Chance\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-17 20:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4429151-peak-amazon-not-a-chance>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nAmazon is still growing at enormous rates despite its dominance.\nThe stock is rangebound but that is for good reason.\nAmazon will break out to the upside after its consolidation period ends.\n...\n\n<a href=\"https://seekingalpha.com/article/4429151-peak-amazon-not-a-chance\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AMZN":"亚马逊"},"source_url":"https://seekingalpha.com/article/4429151-peak-amazon-not-a-chance","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1175983556","content_text":"Summary\n\nAmazon is still growing at enormous rates despite its dominance.\nThe stock is rangebound but that is for good reason.\nAmazon will break out to the upside after its consolidation period ends.\n\nPhoto by Sundry Photography/iStock Editorial via Getty Images\nI have to admit I was intrigued by a piece I saw last week by Mott Capital stating Amazon(AMZN) had peaked and that lower prices were ahead. Amazon is, unquestionably, one of the greatest growth stocks that have ever existed. The company started with very humble beginnings a couple of decades ago and is one of the largest companies in the world today. While that means Amazon is a proven winner, it also means potential growth from current levels – in percentage terms – is obviously going to be lower than it was in 2000 when Amazon was still a niche business. Today, it is a do-everything-for-everyone conglomerate of goods and services just about anyone can use, and the idea that it has peaked seems a bit absurd. Permit me to explain.\nLet’s begin with a daily chart, which does in fact show some signs of weakness, which the author of the bearish article fairly states.\nSource: StockCharts\nWe can see that Amazon is nearly a year into a consolidation pattern following a very large run-up in the middle of last year. The stock has tried to break out but failed, and we can see very clear support at ~$2,900, and very clear resistance at ~$3,550. Those are the lines in the sand until one of them breaks, and as we’ll see below, I firmly believe the one that breaks is resistant to the upside.\nThe rest of this chart isn’t pretty, and I want to be fair about that. The stock has vastly underperformed the S&P 500 during this period of consolidation, which you’d expect given Amazon has been treading water while the broader market makes new records.\nThe accumulation/distribution line is ugly, showing sustained, albeit slow distribution since the August peak of $3,552. That means the dip buyers aren’t out, and that sellers are ruling the day on more occasions than not.\nOn a positive note, the two momentum indicators I’ve got here – the PPO and the 14-day RSI – are both showing positive momentum as the relative bottoms are both meaningfully higher than they were during the last episode of selling. This guarantees nothing, but momentum movements such as this can be early signs of a new rally beginning.\nThe bottom line on the daily chart is that things are messy and until there is a sustained break of either $2,900 or $3,550, we are rangebound.\nHowever, if we zoom out to a weekly chart, I think the picture is much more bullish, and argues that Amazon still remains a leading stock for long-term investors.\nSource: StockCharts\nWe can see the consolidation period is merely a cooling off period after a torrid gain where one of the world’s largest companies more than doubled in the space of a few months. This kind of consolidation occurs for leading stocks when they blow away the market for a period of time, which Amazon certainly did last year. I’ve circled that outperformance in the panel above for reference.\nSecond, the weekly accumulation/distribution line is showing very little in terms of weakness, and merely shows a bit of consolidation.\nMore importantly, however, is that the PPO has seen a massive reset during the past several months, falling from extremely overbought levels of +12 back to very near its centerline. Again, this is very normal behavior for a leading stock that is in a period of consolidation. Perhaps more than anything, this makes me very bullish on Amazon because this is textbook behavior after a big rally, and it means momentum has cooled to the point where buyers can and often do step in again.\nThe point of this lengthy technical picture was to make the point that on a short-term chart, Amazon is indeed messy. But on a long-term basis, that is just noise and I see this period of consolidation resolving firmly to the upside. When that will happen is up for debate, but the idea that Amazon has peaked isn’t supported by the long-term chart in any way.\nNow, let’s take a look at how the business will support this eventual breakout on a fundamental basis.\nA winning tradition\nAmazon, as I said above, is one of the greatest growth stories the world has ever seen. Even just five years ago, the company produced less than $150 billion in revenue, but is expected to nearly 4X that in 2022.\nSource: Seeking Alpha\nThat’s not $150millionto $600 million, that’s “billion” with a “b”.\nThe story is even better with earnings, because for years the bears said that because Amazon wasn’t earning any profits, the stock was overvalued. I know this because I’ll admit to being one of them. I was wrong, and so was every other bear, end of the story.\nSource: Seeking Alpha\nEarnings were basically nothing in 2017 and, next year, are expected to be in excess of $70 per share. That’s what happens when a company achieves high levels of operating leverage, and that is exactly what Amazon has done. Below, we’ll also see that this strength is a very long way from being one-sided; Amazon is winning just about everywhere, and that bodes well for the stock irrespective of economic and competitive conditions.\nThe core North America segment makes up the bulk of the company’s revenue, and that makes sense given this is the part of the business most consumers are familiar with; a catalog of millions of products at your fingertips, and at your door in a day or two in most cases.\nSource: Company presentation\nThis segment lapped the first pandemic-impacted quarter with a 40% sales gain and a staggering 163% operating income gain for Q1 2021, showing the beauty of operating leverage. We know Q4 produces the most revenue for this segment and it always will, given the holiday shopping season. But even with lower revenue, the company’s Q1 operating profit soared well in excess of Q4 2020, a fact that I think unequivocally supports the bull case. If we look at Q1 of last year, it was the worst in terms of revenue and operating profits. If that’s how 2021 turns out, look out above.\nThe international business is still in its relative infancy in terms of producing revenue, but still sported a 60% gain in Q1.\nSource: Company presentation\nThat’s important, but more important is that the international business has begun consistently making money for Amazon. Last year showed a relatively small profit for the year, but this year's Q1 was gangbusters, producing a 4%+ operating margin. As the international business continues to grow, Amazon’s operating leverage will continue to increase, and we’ll see ever-higher operating profits. This will almost certainly always be Amazon’s third-best segment, but the fact that it has the potential to be a profit center in the near future is exciting. And keep in mind Amazon is simply following the playbook of the ultra-successful North America segment, so the path forward isn't difficult to imagine.\nFinally, the big one, AWS.\nSource: Company presentation\nI say it’s the big one not because of its revenue generation, but because of its profit. It has been well-publicized for years that AWS is the future for Amazon, and it hasn’t disappointed. We know cloud computing is a massive business that is growing rapidly, and almost certainly will continue to do so for the foreseeable future. And that is showing up in Amazon’s results.\nHere’s a look at the public cloud services end-user spending market globally to give us an idea of how quickly the market is growing.\nSource: Statista\nWe’re looking at ~22% annual growth for this market from 2017 actuals to 2022 projections. For a market this large, that sort of growth is staggering, but cloud computing offers so many benefits to users over on-premise that this was sort of inevitable.\nThe good news is that Amazon is already the leader in cloud infrastructure, and by a wide margin.\nSource: Statista\nThe big names are all here but Amazon’s market share leadership is absolute. It owns about a third of the total pie, and this is a market that is growing rapidly. As Amazon continues to gain scale on an absolute and relative basis, we should see already-high margins move up as the top line expands. The years of heavy investment in this segment have paid off in a huge way, and will almost certainly continue to do so for many years to come. Owning massive market share in a rapidly-growing market creates a virtuous cycle of high revenue and profit growth rates.\nIn short, Amazon is not only the leader in digital retail, but it is the leader in cloud infrastructure services. That’s a truly amazing thing to think about in a single company.\nMargins and cash\nAll of that success has come with benefits, including much higher margins and better free cash flow generation. Let’s take a look at margins first, which we can see below.\nSource: TIKR.com\nThese are trailing-twelve-months looks at gross profit, operating expenses, and resulting operating margins for the past several years. We can see that the blue bar never dips quarter-over-quarter in this period, meaning Amazon has managed to produce higher gross profit every quarter on a TTM basis. With expenses growing less quickly on a dollar basis, that means the green line – operating margins – has continued to move higher.\nQ1’s results showed a TTM operating margin of more than 7%, a new high, and if I’m right about a rapidly-growing cloud market and continued dominance in digital retail, there is no reason this number will not continue to rise over time.\nIn addition, Amazon has continued to produce strong free cash flow despite tens of billions of dollars of investments over the years.\nSource: TIKR.com\nHere we have operating cash flows and capex, the two components of FCF. Capex continues to rise rapidly, but keep in mind that Amazon is investing for future growth, as it always has, and not for optimizing the next quarter’s numbers. If anything, this level of spending – along with Amazon’s track record of betting big on future winners – bolsters the growth case.\nEven so, FCF for the TTM period ending Q4 2020 was ~$26 billion. That leaves Amazon plenty to invest in essentially whatever it wants, but the company’s cash situation is actually much better than that due to its world-class cash conversion cycle.\nSource: TIKR.com\nAmazon has always been masterful at stringing its vendors along with long payment terms while it demands much better terms from its accounts receivable. In practice, that looks like the above, where Amazon has essentially ~40 days of sales floating at any particular time, which is free financing. At this year’s projected $489 billion in sales, 40 days is ~11% of the year, or ~$53 billion in interest-free financing the company receives from its CCC. That means that looking at FCF by itself is only part of the picture, because Amazon has this massive source of interest-free cash floating around at all times.\nLet’s value this thing\nAll of this is great but we have to know how much we can pay for the stock and make it worth our while.\nSource: Seeking Alpha\nWe’ll start with sales to give us a baseline of where the company’s top line is going. We can see the top line is expected to grow in the mid-teens for the foreseeable future, and that Amazon is on pace to hit atrilliondollars in revenue in 2026.\nSource: Seeking Alpha\nBut that’s not all; the company’s revenue revisions have been unbelievably bullish in recent years, as we can see all of the lines move steadily up and to the right. I always want a stock I own to have this sort of characteristic because it means the company is a perennial outperformer, causing analysts to constantly play catch-up to the upside. Consider that when the pandemic started, 2026 revenue estimates were for ~$680 billion. Just over a year later, that number has been revised up more than $300 billion. That doesn’t sound like a stock that has peaked to me.\nAnd the story is the same with EPS.\nSource: Seeking Alpha\nEPS is slated to grow at ~2X the rate of revenue, which is the product of the operating leverage I spent some time on earlier. This is what operating leverage looks like in practice and with ~7% operating margins, Amazon is just getting started.\nSource: Seeking Alpha\nI won’t belabor the above points but if we continue our example of comparing the pre-pandemic 2026 estimates to today, we see EPS was $116 and today, is $208. Again, I struggle to understand how this is a stock that has peaked when there is so much growth yet to come.\nNow, there are lots of ways to value a stock like Amazon, so we’ll look at three that I think shows an increasingly favorable valuation. We’ll begin with EV to sales.\nSource: TIKR.com\nOn this measure, Amazon wasveryexpensive last summer as it was flying higher. The ratio reached a high of 4.5X, and in the last five years, has averaged 3.1X. Today, the stock is at 3.2X forward sales, which is essentially in line with the long-term average. Is it cheap on this measure? Probably not. Is it expensive and showing signs of a top?Absolutely not.\nNext, let’s take a look at the market cap to FCF.\nSource: TIKR.com\nThe story is a little different here as we can see that Amazon’s peak was lower in a relative sense than it was for EV/S, and the move down has been more muted as well. Still, shares trade at 37X FCF today against an average of 34X, and a peak of 49X. Again, is it cheap on this basis? Probably not. Is it showing signs of excess? No.\nFinally, perhaps the biggest feather in the cap of the bulls is that Amazon is finally trading with a more reasonable price-to-earnings ratio.\nSource: TIKR.com\nIn fact, Amazon’s average P/E ratio for the past five years is 105, and a high was achieved of 227. Today, shares are at 56X forward earnings, and while that is expensive if you’re comparing Amazon to blue chips or utilities, on a relative basis, thisdoesmake the stock cheap. And keep in mind that as EPS estimates are slated for ~30% growth for the foreseeable future - either this line continues lower, or the stock price comes up. Given the stock is already at its low P/E ratio today, I have a very difficult time believing investors will just stop paying for that growth.\nFinal thoughts\nWhile I respect the author’s opinion and viewpoint, I certainly do not agree. There is more than enough evidence that Amazon is winning today in a variety of ways, it will almost certainly continue to win tomorrow, and the stock is cheaper on a P/E basis than it nearly ever has been before. When the current consolidation ends, the break is going to be to the upside.","news_type":1},"isVote":1,"tweetType":1,"viewCount":477,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":3,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}

Peak Amazon? Not A Chance

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