Amazon.com, Inc. (AMZN - Get Rating) 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).

AMZN recently executed its 20-for-1 stock split, the first stock split in the 23-year history of the company. AMZN’s market value was not changed, but its share prices decreased proportionally to the share number made available. The split is expected to generate some positive effects. However, the stock might be weighed down if the company reports slower revenue growth.

Over the past year, AMZN’s stock has declined 37.1% and 30.2% year-to-date to close its last trading session at $116.33. However, it has gained 9.4% over the past five days and 1.8% intraday.

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

Bleak Bottom Line

For the fiscal first quarter ended March 31, AMZN’s total net sales increased 7.3% year-over-year to $116.44 billion. On the other hand, its operating income declined 58.6% from the prior-year quarter to $3.67 billion. Net income and EPS decreased 147.4% and 147.9% from the same period the prior year to a negative $3.84 billion and a negative $7.56.

Stretched Valuations

In terms of its forward non-GAAP P/E, AMZN is trading at 140.52, 1,180.6% higher than the industry average of 10.97x. The stock’s forward EV/EBIT multiple of 71.90 is 542.6% higher than the industry average of 11.19. In terms of its forward Price/Book, it is trading at 6.91x, 209.5% higher than the industry average of 2.23x.

Narrow Profit Margins

AMZN’s trailing-12-months EBIT margin and net income margin of 4.17% and 4.48% are 53.2% and 31.3% lower than their respective industry averages of 8.92% and 6.52%. Its trailing-12-months ROTC and ROA of 5.13% and 5.21% are 28.1% and 7.4% lower than their respective industry averages of 7.13% and 5.63%. 

However, AMZN’s trailing-12-months ROE of 18.05% is 6% higher than the industry average of 17.02%.

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 66-stock Internet industry, it is ranked #39. 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

According to Bank of America Corp. (BAC), companies that split their stock have outperformed the S&P 500 three, six, and 12 months after the initial announcement. Hence, AMZN might see some positive effects in the coming months.

However, the company’s bleak bottom line is concerning. As analysts expect 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 - Get Rating), which has an overall A (Strong Buy) rating, and trivago N.V. (TRVG - Get Rating) and Travelzoo (TZOO - Get Rating), which have an overall B (Buy) rating.

AMZN shares were trading at $114.67 per share on Friday afternoon, down $1.66 (-1.43%). Year-to-date, AMZN has declined -31.22%, versus a -17.85% 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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