Amazon.com, Inc. (AMZN) is a renowned e-commerce behemoth with a global market presence. The company operates through its three broad segments of North America; International; and Amazon Web Services (AWS).

It was reported that AMZN Prime Members purchased more than 300 million items worldwide during Prime Day 2022, making this year’s event the biggest in the company’s history. Worldwide, Prime customers shopped for more than 100,000 items per minute, with U.S. Prime members purchasing more than 60,000 items per minute. The best-selling categories worldwide were Amazon Devices, Consumer Electronics, and Home.

AMZN shares have gained 13.9% over the past month and 1.1% intraday. However, the stock has declined 32.6% over the past year and 26.7% year-to-date to close its last trading session at $122.28.

Here are the factors that could affect AMZN’s performance in the near term:

Bleak Bottom Line

For the fiscal second quarter ended June 30, AMZN’s total net sales increased 7.2% year-over-year to $121.23 billion. On the other hand, its operating income declined 56.9% from the prior-year quarter to $3.32 billion. Net income and EPS decreased 126.1% and 126.3% from the same period the prior year to a negative $2.03 billion and a negative $0.20.

Stretched Valuations

In terms of its forward non-GAAP P/E, AMZN is trading at 303.00x, 2,388.4% higher than the industry average of 12.18x. The stock’s forward EV/EBIT multiple of 82.34 is 595.7% higher than the industry average of 11.84. In terms of its forward Price/Book, it is trading at 7.48x, 216.6% higher than the industry average of 2.36x.

Narrow Profit Margins

AMZN’s trailing-12-month EBIT margin and net income margin of 4.17% and 4.48% are 52.9% and 31.9% lower than their respective industry averages of 8.85% and 6.58%. Its trailing-12-month ROTC and ROA of 5.13% and 5.21% are 28.1% and 5.5% lower than their respective industry averages of 7.13% and 5.52%. However, AMZN’s trailing-12-month ROE of 18.05% is 7.9% higher than the industry average of 16.73%.

POWR Ratings Reflect Bleak Prospects

AMZN’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

AMZN has a Growth grade of D in sync with its bleak bottom-line growth in the last reported quarter. The stock also has a D grade for Value, consistent with its lofty valuations.

In the 65-stock Internet industry, it is ranked #35. The industry is rated F.

Click here to see the additional POWR Ratings for AMZN (Momentum, Stability, Sentiment, and Quality).

View all the top stocks in the Internet industry here.

Bottom Line

The stellar Prime Day this year might bolster the company’s top line. However, AMZN is currently struggling with bottom-line losses, and its low profitability is concerning. Moreover, with analysts expecting AMZN’s EPS for the current year to decline, I think the stock might be best avoided now.

How Does Amazon.com, Inc. (AMZN) Stack Up Against its Peers?

While AMZN has an overall POWR Rating of D, one might consider looking at its industry peers, Yelp Inc. (YELP) and trivago N.V. (TRVG), which have an overall B (Buy) rating.

AMZN shares were trading at $135.81 per share on Friday morning, up $13.53 (+11.06%). Year-to-date, AMZN has declined -18.54%, versus a -13.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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