It is not very common to find severely mispriced companies within the group of Mega-Cap Stocks as they are often the most covered by analysts. However, periods of high volatility and uncertainty can represent good opportunities to purchase such companies at a reasonable discount.
I find Amazon to be an example of that.
Due to the very principles that guide the company, it is safe to say that the task of valuing Amazon has never been as straightforward as it was in the case of Apple, Microsoft or Alphabet, and the latest couple of years exacerbated this. The overall market uncertainty combined with investors' pessimism specifically towards the short-term outlook of the company caused the stock to sink below its pandemic lows.
At its 52-week low of $81.43, the P/S Ratio was 1.62. After all these years of consolidating its global footprint and successfully expanding into new markets, the market is still pricing Amazon as just an online retail store, but is it though? Net sales from online stores and physical stores combined currently account for less than half of the total whereas high-margin segments such as third-party seller, advertising and AWS are 45% of it and growing substantially.
As per latest annual report, the various business segments accounted the following of the total:
- Online stores: 43%;
- Physical stores: 4%;
- Third-party seller services: 22%;
- Subscription services: 7%;
- Advertising services: 7%;
- AWS: 16%;
- Other: 1%.
And each business segment grew over the last 12 months as below:
- Online stores: -1%;
- Physical stores: 11%;
- Third-party seller services: 13%;
- Subscription services: 10%;
- Advertising services: 21%;
- AWS: 29%;
- Other: 95%.
I don't want to make the post too long and boring so I will wrap it up by saying that this is no average online store, this is a whole business ecosystem within just one company, the world’s 3rd company by revenue, growing faster than any other competitor despite the massive size, close to the top 10 of the world’s most popular websites by total visits and always ranked amongst the world's most admired companies, its apps are all highly rated on both the App Store and the Play Store.
The scale of its business, combined with an unmatched customer obsession and a long-term focus in capital deployment make Amazon a company with one of the widest economic moats in the market. And if that was not enough, large amounts of high-quality data ensure that the company is able to provide its customers with the best possible experience. In a world where consumer data is king, Amazon reigns supreme.
For personal purposes, I am thoroughly researching and writing about the company so if there is interest in that, I would be happy to write a second post in which to explore what the competitive advantages of every single business segment are, what the main (both actual and perceived from the market) issues the company faces over the short and long term as well as to make a proper valuation of the business.
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