Amazon.com: The Most Overvalued Profitable Company In The S&P 500, Still

| About: Amazon.com, Inc. (AMZN)

Summary

When Amazon.com's share price hit an all-time high of $408.06 intraday on Jan. 22, it was arguably the Most Overvalued Profitable Company in the S&P 500 equity index.

When Amazon.com’s share price hit a 2014 low of $302.71 intraday on Friday, it was arguably still the Most Overvalued Profitable Company in the S&P 500.

Today, we take a comparative look at Amazon and its four closest competitors for this dubious distinction, by the numbers.

Amazon.com Inc. (NASDAQ:AMZN) delivered a disappointing financial report for its first quarter on Thursday, leading equity-market participants to sell the online retailer's shares with both hands on Friday, driving down the price on extraordinarily heavy volume to $303.83 from $337.14, a decline of -$33.32, or -9.88 percent.

Since Amazon.com's past bull market ended and the present bear market began, its share price on an intraday basis dipped to $302.71 on Friday from $408.06 on Jan. 22, a drop of -$105.35, or -25.82 percent. However, this impressive plunge during a period of 66 trading days does not change the fact the Seattle-based Amazon still appears to be either the Most Overvalued Profitable Company in the S&P 500 equity index or at least one of a handful of firms with an active claim to this designation.

Amazon.com's primary competitors for this dubious distinction are Alexion Pharmaceuticals Inc. (NASDAQ:ALXN), American Tower Corp. (NYSE:AMT), Facebook Inc. (NASDAQ:FB) and Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), according to multiple sources, such as FinViz.com, YCharts, Zacks.com and my own analyses. (I affectionately have dubbed the five contestants "The Dear Ones" in this article.)

Below is an assortment of figures associated with Amazon.com and/or its four closest rivals for the title of Most Overvalued Profitable Company in the S&P 500.

Figure 1: The Dear Ones, By Earnings Yield

Click to enlarge

AMZN Earnings Yield (TTM) data by YCharts

Note: This chart and the next two of them cover the period between March 6, 2009, and April 25, 2014.

Source: YCharts.

I am a growth-and-value guy who appreciates a variety of valuation metrics, so I examined the five contenders for the title of Most Overvalued Profitable Company in the S&P 500 by employing six of these metrics and a point-scoring system ranging between 1 (the most overvalued) and 5 (the least overvalued) for each. Among these metrics were earnings yield (EY); the enterprise value-to-earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio; and the price-earnings-to-growth (P-E/G) ratio.

The firms' scores by their EYs were (1) Amazon.com, 0.21 percent; (2) Facebook, 1.03 percent; (3) Alexion, 1.07 percent; (4) Regeneron, 1.38 percent; and (5) American Tower, 1.66 percent (Figure 1).

The firms' scores by their EV/EBITDA ratios were (1) Alexion, 45.73; (2) Facebook, 41.05; (3) Regeneron, 36.16; (4) Amazon.com, 31.47; and (5) American Tower, 26.11 (Source: YCharts).

And the firms' scores by their P-E/G ratios were (1) Amazon.com, 6.14; (2) Regeneron, 2.55; (3) American Tower, 1.99; (4) Facebook, 1.82; and (5) Alexion, 1.31 (Source: Zacks.com).

Anyone keeping score at home can see that at halftime Amazon.com was the leader with 6 points and American Tower was the laggard with 13 points.

Figure 2: The Dear Ones, By Price-To-Book Value Ratio

Click to enlarge

AMZN Price to Book Value data by YCharts

Source: YCharts.

In the continuing competition for the title of Most Overvalued Profitable Company in the S&P 500, the firms' scores by their price-to-book value (P-BV) ratios were (1) Regeneron, 14.52; (2) Amazon.com, 13.51; (3) Alexion, 11.22; (4) Facebook, 9.51; and (5) American Tower, 9.29 (Figure 2).

Accordingly, Amazon.com was still leading and American Tower was still lagging.

Figure 3: The Dear Ones, By Price-To-Sales Ratio

Click to enlarge

AMZN PS Ratio data by YCharts

Source: YCharts.

In the ongoing contest for the title of Most Overvalued Profitable Company in the S&P 500, the firms' scores by their price-to-sales (P-S) ratios were (1) Facebook, 18.48; (2) Alexion, 17.30; (3) Regeneron, 14.73; (4) American Tower, 9.86; and (5) Amazon.com, 1.80 (Figure 3).

As a result, the retailer found itself on the cusp of snatching defeat from the jaws of victory. However, it made a strong showing in the final event, as the firms' scores by their price-to-free cash flow (P-FCF) ratios were (1) Amazon.com, 94.20; (2) Regeneron, 72.55; (3) Alexion, 63.93; (4) Facebook, 50.87; and (5) American Tower, 37.91 (Source: YCharts).

Figure 4: The Dear Ones, Ranked By The Numbers

Click to enlarge

Source: This J.J.'s Risky Business table is based on proprietary analyses of data provided by FinViz.com, YCharts and Zacks.com.

Amazon.com is the Most Overvalued Profitable Company in the S&P 500 when measured by the six valuation metrics discussed in this article (Figure 4).

Its absurd valuation appears especially bizarre given the fact the U.S. Federal Reserve is in the midst of a move to tighter from looser monetary policies, as mentioned in "Utilities No. 1 Among Select Sector SPDR ETFs In 2014 As Of Mid-April." (It is important to note the Federal Open Market Committee will conduct its next meeting on Tuesday and Wednesday, when it may choose to continue tapering its current quantitative-easing program.)

To put Amazon.com's current earnings yield of 0.21 percent in proper perspective, I calculate the S&P 500's 2013 earnings yield as 5.42 percent, employing the figures in the "S&P 500 Earnings and Estimate Report" prepared by S&P Senior Index Analyst Howard Silverblatt and published by S&P Dow Jones Indices on April 24.

Moreover, I note Amazon.com's Zacks consensus estimate for earnings per share in 2014 is now $1.76 (compared with $2.53 three months ago) and for EPS in 2015 is now $4.09 (compared with $5.69 three months ago), which leads me to conclude with the following two observations:

  • If one were to compute the company's earnings yield using its actual closing share price of $303.83 on Friday and its estimated EPS of $1.76 in 2014, then the result would be 0.58 percent.
  • If one were to compute the company's earnings yield using its actual closing share price of $303.83 on Friday and its estimated EPS of $4.09 in 2015, then the result would be 1.35 percent.

As commonly happens when I consider Amazon.com's valuation (past, present and future), my head is currently echoing with the lyrics of an old Joe Hill song about "pie in the sky … in the sweet bye and bye."

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in the securities of any companies mentioned and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope, and there are limitations to their accuracy. The author recommends all investors conduct detailed investment research of their own, including review of relevant U.S. Securities and Exchange Commission filings and consultation with a qualified investment adviser. The information upon which this article is based was obtained from sources believed to be reliable, but it has not been independently verified, which means the author cannot guarantee the accuracy of this information. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.