This report analyzes the performance of Amazon.com stock relative to their financial performance. The report focuses on the current state of the capital market, Amazon's earnings trends, ratio analysis, and analyst recommendations. The report concludes with an investment recommendation based on the information obtained by the analysis. .
All ratios were computed using financial information obtained from Amazon's 10-K filings from 1999-2002. 2003 financial information was obtained from Amazon's 10Q for the quarter ended September 30, 2003. .
Current State of Capital Market.
The United States economy is still experiencing a significant recession, which has weakened the capital markets. Over the past five years stock prices have experienced massive fluctuations. This is especially pertinent to technology stocks such as Amazon. The graph below illustrates Amazon's stock performance over the past five years.
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Amazon's stock has fluctuated drastically since 1999. In light of the current economy, it is reasonable to assume that this stock will continue this trend, and begin declining soon.
Earnings Trends.
The graph below shows Amazon's net income since 1999:.
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Amazon has reported net losses in every year of operations. While the amount of losses has been decreasing since 2000, it is not likely that the Company will report earnings in 2003. The market tends to react poorly to reported losses. While Amazon's stock may continue to rise through year-end, the price is likely to decline significantly when Amazon reports net losses early in 2004.
Ratio Analysis.
The following section examines trends in Amazon's liquidity, solvency, and profitability ratios since 1999. .
Liquidity.
Liquidity ratios measure Amazon's ability to meet its short-term debt and include the current ratio and quick ratio. The following chart illustrates trends in Amazon's liquidity ratios:.
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Amazon's current ratio and quick ratio have been increasing since 1999.