Stock Pick of the Week with Momentum Securities: 08 July – Amazon

Momentum’s leading stockbroking division – Momentum Securities – will be bringing you their Stock Pick of the Week, each week on a Wednesday or Thursday.

The stock pick motivation is available as written content and a downloadable video and audio clip.

This week’s pick: Amazon
About: Amazon is one of the worlds’ most successful e-commerce companies, also specialising in artificial intelligence, cloud computing and digital streaming services. Amazon ranks amongst the five biggest companies within the United States IT industry.

Analyst for Momentum Securities, Nancy Bambo shares her insight on Amazon.

Click here to download:
• the audio clip
• the video clip.

“Our stock pick for the week is a progressive and innovative company - Amazon. Currently trading at a share price of 3 510 US dollars per share. Amazon share price has fared well historically, and the company has also weathered through the COVID 19 pandemic well, demonstrating good bottom line and top line growth. This, to some degree, may have been expected given that it is indeed an e-commerce business. Like the overall US market, it also benefited from US stimulus.

Amazon is not only a leader in e-commerce sales in the US, but its Amazon Web services business, abbreviated as AWS, makes it a global leader in cloud computing, as well. It has benefited greatly from a higher margin AWS business, which contributes 12% to group net sales and 60% to group operating income. Its North American operations account for 61% of group net sales, and its international operations account for 27% of group net sales. The consensus view is for 20% twelve-month price upside, at current price.

Its net profit margins on average have increased since 2017 to about 4.6%, generally due to a decrease in cost of sales. It has favourable matrix currently trading at a forward P/E of 48 times, a discounted five-year average forward P/E. This 48 times forward P/E can be justified by a high historical EPS CAGR over five years of over 100%, as well as its forecast EPS growth of 33% annually, over three years.
It has variable debt matrix. Say for a relatively higher debt equity ratio, its able to cover its interest obligations 13 times and has an Altman Z-score of 6. In other words, it has a low probability of bankruptcy.

Amazon also has very good cash generation, and this is generally good for any business. Amazon has existed in the green during the previous two pandemics and in current conditions actually benefits from the pandemic induced restrictions. Despite talks of contractionary monetary policy, which could be negative for the overall US stock market, we think Amazon is a good choice for one stock portfolio.”