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As recently as August 11, 2008 Amazon (NASDAQ:AMZN) was trading at $88.09.  With AMZN now trading around the $70 mark – does this represent a good opportunity to buy?  We decided to look at the underlying numbers for AMZN, using the Valuecruncher on-line valuation model to see what we think about the current share price.

Valuecruncher produces a valuation of $62.65 for AMZN.  This is a current valuation, not a target price, and is 10% below the current share price of $69.96.

Assumptions

Our assumptions are revenues of $19.5 billion in 2008 growing to $30.5 billion in 2010. We have used an EBITDA margin of 7% in 2008 increasing to 8% in 2010. We used a terminal growth rate of 5%, a terminal capital expenditure number of $375 million, and a WACC (discount rate) of 10.5%.  All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

Our analysis incorporates the cash and debt on the AMZN balance sheet – Valuecruncher calculates a net debt number.

Based on our analysis, the current share price looks expensive.  We recognize that AMZN has a range of potentially valuable growth options (especially its Web Services platform). Currently, it is very difficult to determine a value of these growth options – we have made a broad attempt with our growth projections and terminal growth rate. However, it appears that these options are being valued into the current share price at a level beyond what we are projecting.  Play with our assumptions – what does your analysis say?

Disclosure: None.

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Source: Running The Numbers: Amazon Looks Expensive