Amazon is the largest online retailer in the world, and its stock has been on a meteoric rise for the past several years. Despite tremendous growth and success, many analysts are questioning whether Amazon is overvalued.
Amazon has a market capitalization of $816 billion, making it one of the largest companies in the world. It has enjoyed tremendous success in recent years, as its sales have grown at an impressive rate.
Over the past five years, Amazon’s revenue has more than tripled from $34 billion to $107 billion.
The company’s stock price has followed suit, increasing from around $400 per share in 2013 to nearly $1,700 today. This massive appreciation of Amazon’s stock price has led some analysts to question whether the company is actually worth its current market capitalization.
One issue that analysts have pointed to is Amazon’s profitability. Despite its large size and impressive growth numbers, Amazon remains a relatively low-margin business.
In 2017, its operating margin was only 1.6%, compared to 7% for Walmart and 15% for Apple. Some analysts argue that this low margin means that Amazon is not generating enough cash flow to justify its current stock price.
Another concern among analysts is Amazon’s high level of investment spending. In 2017 alone, Amazon invested over $13 billion in research and development and other capital expenditures. These investments are necessary if the company wants to continue growing at its current pace, but they also mean that profits will remain low in the near term.
Conclusion:
Overall, it is difficult to determine whether or not Amazon is overvalued based on its current financial performance and outlook for future growth. On one hand, it has achieved tremendous success over the past several years and could continue to grow at a rapid pace going forward.
On the other hand, it remains a relatively low-margin business with high levels of investment spending that could limit profitability in the near term. Ultimately it will be up to investors to decide if they believe that Amazon’s stock price reflects its true value in today’s market.
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