OPINION: Amazon, despite its high valuation by the traditional price-to-earnings ratio, is a bargain stock for long-term investors. And this may be a perfect time to consider making a purchase, Philip van Doorn writes.
Amazon.com, despite its high valuation by the traditional price-to-earnings ratio, is a bargain stock for long-term investors. And this may be a perfect time to consider making a purchase. iframe.twitter-tweet { width: 100% !important; } The forward price-to-earnings ratio is the current share price divided by the consensus earnings-per-share estimate for the next 12 rolling months.
If we look back over the past five full years, Amazon’s earnings per share have increased at a compound annual growth rate of 101.8%. That compares to an EPS CAGR of only 3.4% for the S&P 500. But enough with looking back. We can look ahead and compare Amazon with other very large tech-oriented companies for a better picture of how inexpensive its shares are.
Sticking with Apple as an example, the company’s consensus calendar 2021 EPS estimate among analysts polled by FactSet is $5.19 and the consensus EPS for calendar 2024 is $6.05. Those numbers would make for an EPS CAGR of 5.2% from 2021 through 2024. The closing price for the stock on May 17 was $126.27, so the P/E based on the consensus 2024 EPS estimate would be 20.9. The PEG ratio is the P/E divided by the CAGAR of 5.2, or 4.0.
Amazon is tied with Netflix Inc. NFLX, -0.21% for the lowest 2024 PEG ratio of 0.8. But Amazon shines even brighter with the highest expected EPS CAGR from 2021 through 2024.
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