The e-commerce giant Amazon.com Inc. (AMZN - Get Rating) sells consumer products and subscriptions internationally. It operates through North America; International; and Amazon Web Services. Its shares have declined 39.1% over the past year and 36.3% year-to-date to close the last trading session at $106.22.

AMZN completed its 20-for-1 stock split, which went into effect on June 6, 2022, after being announced in March. It marks the company’s first stock split since 1999 and the fourth since AMZN went public in 1997.

However, the stock has not witnessed any significant momentum. It closed its last trading session way below its pre-split price of $2000. Higher inflation knocked on AMZN’s profitability in the first quarter. And according to management, the difficulty may extend longer than the company anticipated earlier in the year.

Here’s what could shape AMZN’s performance in the near term:

Poor Bottom-line Performance

AMZN’s total net sales increased 7.3% year-over-year to $116.45 billion for the first quarter ended March 31, 2022. However, its operating income declined 58.6% from the prior-year quarter to $3.67 billion. The company reported a net loss of $3.84 billion, compared to a net income of $8.10 billion in the prior-year quarter. In addition, its net cash used in operating activities came in at $2.79 billion for the three months ended March 31, 2022.

Low Profitability

AMZN’s trailing-12-month net income margin of 4.48% is 31.7% lower than the industry average of 6.6%. Also, its trailing-12-month ROA, ROC, and EBIT margin are 7.4%, 30.6%, and 53.8%, lower than their respective industry averages. Moreover, its trailing-12-month negative levered FCF margin of 1.9% compares to its industry average of 3.41%.

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 128.02x, 1088.7% higher than the industry average of 10.77x. Also, its forward EV/Sales of 2.21x is 116.5% higher than the industry average of 1.02x. Moreover, AMZN’s forward Price/Book of 6.38x is 190.6% higher than the industry average of 2.19x.

POWR Ratings Reflect Bleak Outlook

AMZN has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AMZN has a D grade for Growth and Value. The company’s poor bottom-line performance and low profitability are consistent with the Growth grade. In addition, its higher-than-industry valuation is in sync with the Value grade.

Of the 66 stocks in the F-rated Internet industry, AMZN is ranked #47.

Beyond what I’ve stated above, you can view AMZN ratings for Stability, Momentum, Quality, and Sentiment here.

Bottom Line

Supply chain bottlenecks and inflationary pressures are projected to hurt AMZN’s e-commerce operations in the current quarter. Moreover, despite the stock split, AMZN is presently trading at a hefty premium to its peers. So, we think the stock is best avoided now.

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

While AMZN has an overall D rating, one might want to consider its industry peers, Yelp Inc. (YELP - Get Rating), which has an overall A (Strong Buy) and trivago N.V. (TRVG - Get Rating), and Travelzoo (TZOO - Get Rating), which have an overall B (Buy) rating.

AMZN shares fell $106.22 (-100.00%) in premarket trading Tuesday. Year-to-date, AMZN has declined -35.27%, versus a -21.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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