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).

Recently, AMZN announced a deal with Grubhub, an online food delivery platform that would allow U.S. Amazon Prime members to sign up for a free one-year Grubhub+ membership and get free unlimited deliveries. AMZN is also expected to become a stakeholder in the Grubhub business. This provides the company the chance to heighten its Prime Service’s appeal.

AMZN shares have gained 8.1% over the past month and marginally intraday. However, the stock has declined 39.9% over the past year and 33.6% year-to-date to close its last trading session at $110.63.

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

Bleak Bottom Line

For the fiscal first quarter that 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 138.24x, 1,137.3% higher than the industry average of 11.17x. The stock’s forward EV/EBIT multiple of 70.53 is 535.5% higher than the industry average of 11.10. In terms of its forward Price/Book, it is trading at 6.68x, 208.41% higher than the industry average of 2.17x.

Narrow Profit Margins

AMZN’s trailing-12-month EBIT margin and net income margin of 4.17% and 4.48% are 53.4% and 31.7% lower than their respective industry averages of 8.94% and 6.56%. Its trailing-12-month ROTC and ROA of 5.13% and 5.21% are 28.5% and 7.4% lower than their respective industry averages of 7.17% and 5.63%. However, AMZN’s trailing-12-month 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 #38. 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 Grubhub deal might bolster the company’s Prime business. 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 $112.44 per share on Friday morning, up $1.81 (+1.64%). Year-to-date, AMZN has declined -32.56%, versus a -18.79% 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...

More Resources for the Stocks in this Article