Despite gaining 22% year-to-date, Amazon’s stock is currently trading 13% below its estimated fair value of $213. The stock has seen gains of 10% since early January 2021, but its performance has been inconsistent over the past few years. In 2021, Amazon underperformed the S&P 500 with returns of 2%, followed by a decline of -50% in 2022 and a sharp increase of 81% in 2023. Other heavyweights in the Consumer Discretionary sector and mega-cap stars have also struggled to consistently beat the S&P 500. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the benchmark index.
In the first quarter of 2024, Amazon exceeded street estimates with net sales increasing 13% year-over-year to $143.3 billion. This growth was driven by a 12% increase in the North America segment, a 10% rise in the International unit, and a 17% gain in the Amazon web services division. Operating expenses as a percentage of revenue decreased, leading to an operating margin of 8%. Despite this, total non-operating income decreased, impacting the bottom line. Overall, net income jumped significantly from $3.2 billion to $10.4 billion.
For the full year 2023, Amazon’s top-line grew 12% year-over-year to $574.8 billion. This growth was driven by increases in the North America, International, and Amazon web services units. Operating expenses as a percentage of revenue also decreased, resulting in a 200% rise in operating income. Other income saw a significant improvement, jumping from a loss of -$16.8 billion in 2022 to $938 million in 2023. The year ended with a net income of $30.4 billion, a substantial increase from $2.7 billion in the previous year.
Looking ahead to Q2 2024, Amazon expects sales to be between $144 billion to $149 billion. For the full year, revenues are forecasted to be around $641.4 billion, with an expected improvement in the adjusted net income margin leading to a net income of $43 billion and revenue per share of $61.48. This, combined with a P/S multiple of just under 3.5x, is anticipated to result in a valuation of $213 for Amazon’s stock.
In conclusion, Amazon’s stock has shown strong performance in the current economic environment, despite facing challenges in previous years. The company’s ability to exceed expectations and drive growth in key segments such as North America, International, and Amazon web services bodes well for its future prospects. With a strategic focus on improving net income margin and revenue per share, Amazon is positioned for continued success in 2024 and beyond. Investors looking to capitalize on Amazon’s growth can consider investing in the Trefis High Quality Portfolio, which has a track record of outperforming the S&P 500.