AMZN Stock Study (2-1-23)

I recently* did a stock study on Amazon.com Inc. (AMZN) with a closing price of $103.13.

Value Line writes:

     > Amazon.com is the largest online retailers [sic]. The company opened
     > its virtual doors in 1995. Sales breakdown (2021): North America;
     > 59% of sales. International sales, 27% of total. Amazon Web Services
     > (AWS), 14%. Third-party sellers (Marketplace) account for about 20%
     > of sales. Seasonality: Q4 accounted for 29% of ’21 revenue.
     > Acquired Audible.com, ’08, Zappos, ’09, Whole Foods Market, ’17.

This mega-sized (> $50B annual revenue) company has grown sales at an annualized rate of 26.1% over the last 10 years and EPS 71.1% per year since 2016 (excluding previous years with tiny EPS that skew the historical average even higher). Lines are mostly up and parallel except for EPS decline in ’22. PTPM has trended higher over the last 10 years from ~1% to ~8% with a last-5-year average of 5.3%. This slightly trails peer (stated as VIPS, JDD, and PDD) and industry averages.

ROE has trended up from ~0% to ~27% over the last 10 years with a last-5-year average of 22.1%. Debt-to-Capital has increased from 31.9% to 45.7% with a last-5-year average of 49.8%. This is lower than peer and industry averages. Although Interest Coverage is only 5.6 and the Quick Ratio only 0.68, the M* analyst writes:

     > The balance sheet is sound with a net cash position and only modest
     > gross debt. We expect the balance sheet to remain sound as the
     > company has typically maintained a conservative balance sheet and
     > generates more than enough FCF from [Amazon Web Services] and
     > advertising to fund growth throughout the business.

I assume long-term annualized sales growth of 8% based on the following:

• YF projects YOY 8.6% and 9.6% growth for ’22 and ’23, respectively (based on 46 analysts).
• Zacks projects YOY 8.6% and 9.1% growth for ’22 and ’23, respectively (13).
• Value Line projects 17.8% growth per year from ’21-’26.
• CFRA projects 13.3% YOY and 10.8% per year for ’22 and ’21-’23, respectively.
• M* provides a 2-year estimate of 8.6%.

I assume long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 5-year annualized growth of 12.2%.
• MarketWatch projects annualized ACE of -8.1% and 11.6% for ’21-’23 and ’21-’24, respectively (based on 54 analysts).
• Nasdaq.com projects 65.8% YOY and 66.9% per year for ’24 and ’23-’25, respectively (12, 8, and 4 analysts).
• YF projects YOY growth of -103.7% and 1433% as negative ’22 earnings rebound in ’23 off a fractional base (46).
• YF also gives a 5-year annualized estimate of 26%.
• Zacks similarly projects YOY growth of -104.3% and 1228% as earnings turn negative in ’22 then rebound in ’23 (11).
• Zacks gives a 5-year annualized estimate of 18%.
• Value Line projects annualized growth of 21.2% from ’21-’26.
• CFRA projects -103.7% YOY and -24.6% per year for ’22 and ’21-’23, respectively.
• M* gives a long-term growth estimate of 8.9%.

I’m forecasting near the bottom of the long-term-estimate range (8.9% – 26%). Because a rebound is forecast following a sharp [quarterly] EPS drop in ’22, I decided to override projection from the last annual (vs. quarterly) data point.

My Forecast High P/E is 35. Since 2016, high P/E has eased from 173 to 58.2 (2021). The last 5-year average is 106.1. At some point, I expect P/E to fall into a “normal” range, but predicting when this happens is like taking a shot in the dark.

My Forecast Low P/E is 25. Since 2016, low P/E has eased from 97 to ~44 (2021) with a last 5-year average of 65.3. I expect this to fall into a “normal” range eventually (I’m astounded that this hasn’t happened already to the mega-sized company).

My Low Stock Price Forecast is $81. The default low price is $27.30 based on the depressed $1.09 EPS. This does not seem reasonable. Instead, I will use the 2020 low price of $81.30, which is 21% below the last closing price.

All this results in an U/D ratio of 3.2. This makes AMZN a BUY with a Total Annualized Return (TAR) of 11.1%.

AMZN’s 17% ownership stake in RIVN is what makes this analysis so complex. AMZN lost $10.4B over the first nine months of 2022 due to the drop in RIVN stock price. This is why analysts forecast -100% EPS growth for 2022 and why some 2023 [provided that RIVN shares do not continue the precipitous decline] growth projections are over 1000%. In my view, any math amounting to a 20%+ long-term (e.g. 3-5) EPS growth rate after years 1-2 are negative is suspect.

While TAR is decent, PAR (using forecast average, not high, P/E) is only 7.7%. Is it reasonable to expect the former, which is consistent with the highest long-term analyst estimates?

To answer this, I assess margin of safety (MOS) by comparing my inputs with Member Sentiment (MS). Out of 1142 studies over the past 90 days, projected sales, projected EPS, high P/E, and low P/E average 13.9%, 17%, 78.6, and 67, respectively. I am dramatically lower on all inputs.

To calculate average MS Low Stock Price Forecast, I excluded 199 studies using $100 or more. At least half of these were four digits, and I deem all them to be unreasonable and/or invalid. The revised averages are 13.1%, 16.4%, 73.6, and 61.5, respectively: still well higher than mine. The average Low Stock Price Forecast is $70.50, which is lower than mine and would have resulted in a HOLD for this study rather than BUY. I’m not sure how meaningful this is as I would similarly have had a lower Low Stock Price Forecast had I chosen to use the 2020 low—a decision one could argue to be unreasonable.

While my aim is to use MS to evaluate MOS, I wonder if such comparison here might be apples-to-oranges because I don’t know how many changed projection from the last quarterly (default) to annual data point. Nevertheless, both my growth rate and P/E projections are lower than MS. Even if the conservativism of one set effectively offsets the [more aggressive decision to] override from quarterly to annual data point, I still have the other conservative set providing MOS.

And Value Line has a projected average annual P/E of 40 compared to my 30, which further bolters the conservative case.

Despite the lackluster PAR, given the apparent MOS I like a BUY on these shares up to $104.

*—Publishing in arrears as I’ve been doing one daily stock study while only posting two blogs per week.

FOXF Stock Study (1-31-23)

I recently* did a stock study on Fox Factory Holding Corp. (FOXF) with a closing price of $113.39.

Value Line writes:

     > Fox Factory Holding Corp. designs, engineers, manufactures, and
     > markets performance ride dynamics products for customers
     > worldwide. Fox Factory Holding is the holding company of Fox
     > Factory, Inc. The company’s premium brand ride dynamics products
     > are used primarily on bicycles, side-by-side vehicles, onroad
     > vehicles with off-road capabilities, off-road vehicles and
     > trucks, all-terrain vehicles, snowmobiles, specialty vehicles
     > and applications, and motorcycles.

This medium-sized company has grown sales and EPS at annualized rates of 19.8% and 25.5% over the last 10 years. Lines are mostly up and parallel with slight EPS pullbacks in ’15 and ’20. PTPM over the last 10 years has increased from 9.5% to 14.5% with a last-5-year average of 13.8%. This beats peer (stated as THRM, ALSN, and GTX) and industry averages.

ROE has trended down from 28.5% in ’13 to 19.2% in ’21 with the last five years averaging 20.3%: slightly better than peer and industry averages. Debt-to-Capital has ranged from 8% (’13) to 35.5% (’20) over the last nine years with a last-5-year average of 25.2%: lower than peer and industry averages. Interest Coverage is 28, and the company has no long-term debt.

I assume long-term annualized sales growth of 8% based on the following:

• CNN Business projects 23.1% YOY and 14.4% per year for ’22 and ’21-’23, respectively (based on 6 analysts).
• YF projects YOY 21.4% and 5.4% for ’22 and ’23, respectively (7 analysts).
• Zacks projects YOY 21.4% and 5.1% for ’22 and ’23, respectively (5).
• Value Line projects 8.5% annualized from ’21-’26.

I assume long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 17.1% YOY and 13.3% per year for ’22 and ’21-’23, respectively (based on 6 analysts), along with a 5-year annualized estimate of 14.4%.
• MarketWatch projects annualized ACE of 13.5% and 12.4% for ’21-’23 and ’21-’24, respectively (7 analysts).
• Nasdaq.com projects 9.5% YOY and 9.4% per year for ’23 and ’22-’24, respectively [5, 5, and 1 analyst(s) for ’22, ’23, and ’24].
• YF projects YOY 17.1% and 9.7% for ’22 and ’23, respectively, and 15% annualized for the next five years (7).
• Zacks projects YOY 17.1% and 9.5% for ’22 and ’23, respectively, and 13.8% annualized for the next five years (5).
• Value Line projects 12.6% annualized from ’21-’26.

I’m forecasting beneath the range (12.6%) of four long-term estimates.

My Forecast High P/E is 27. High P/E has ranged from 26.1 (’14) to 51.1 (’20) and trended higher since 2013. The last-5-year average is 42.9.

My Forecast Low P/E is 15. Low P/E has ranged from 14.7 (’16) to 26.3 (’21) since 2013. The last-5-year average is 20.6.

My Low Stock Price Forecast is $67.20, which is the default value. This is 40% less than the previous closing price and just below the 52-week low of 69.3. The stock has had a big run-up in price over the last few months.

All this results in an U/D ratio of 1.6, which makes FOXF a Hold. Total Annualized Return (TAR) is 10.4%.

While TAR is decent, PAR (using Forecast Average, not High, P/E) is only 5%. I want more from a medium-sized company.

For more context, I like to assess margin of safety (MOS) by comparing with Member Sentiment (MS). Out of 212 studies over the past 90 days, projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 12.9%, 13.2%, 31.3, and 18.9, respectively. I’m lower on all inputs and also lower than Value Line’s projected average annual P/E of 25 (vs. 26.1 for MS and 21 for me). The average MS Low Stock Price Forecast is also above mine at $68.87.

The MOS is alive and well in this study: enough to preclude a buy over $97/share.

*—Publishing in arrears as I’ve been doing one stock study per day while usually posting two blogs per week.

BOOT Stock Study (1-26-23)

I recently* did a stock study on Boot Barn Holdings Inc. (BOOT) with a closing price of $74.37.

From M*:

     > Boot Barn Holdings Inc operates specialty retail stores.
     > The company sells western and work-related footwear,
     > apparel, and accessories in the United States. It is a
     > single operating segment, which includes net sales
     > generated from its retail stores and e-commerce websites.

This medium-sized company has grown sales at an annualized rate of 18.5% over the last 10 years and EPS 41.8% per year since ’14. Lines are mostly up, straight, and parallel. PTPM over the last 10 years has risen from 0.6% to 17% (upside outlier) with a last 5-year average (excluding the outlier) of 6.6%. This was below peer (stated as BURL and VSCO) and industry averages until ’20.

ROE has increased from 10.1% in ’14 to 34% in ’21 with the latter appearing to be an upside outlier. The last 5-year average is 18.9%, which seems slightly below (above) industry (peer) averages. Debt-to-Capital has averaged 45.7% over the last five years and was higher than peer and industry averages until 2019. The company has no long-term debt [operating leases], though, and Interest Coverage is over 60.

I assume long-term annualized sales growth of 6% based on the following:

• CNN Business projects 13.3% YOY and 9.5% per year for ’22 and ’21-’23, respectively (based on 12 analysts).
• YF projects YOY 11.8% and 6.8% for ’23 and ’24, respectively (13 analysts).
• Zacks projects YOY 12.2% and 7.6% for ’23 and ’24, respectively (5).
• Value Line projects 7.9% annualized from ’21-’26.
• CFRA projects 11.9% YOY and 13% per year for ’23 and ’22-’24, respectively (13).
• M* gives a 2-year ACE of 8.7% per year.

I assume long-term annualized EPS growth of 5% based on the following:

• CNN Business reports ACE of 7.1% YOY contraction and 1.6% per year contraction for ’22 and ’21-’23, respectively (based on 12 analysts).
• MarketWatch projects annualized ACE of 1.6% contraction and 3.2% growth from ’22-’24 and ’22-’25, respectively (13 analysts).
• Nasdaq.com projects growth of 5.2% YOY and 10% per year for ’24 and ’23-’25, respectively (6, 7, and 2 analysts for ’23, ’24, and ’25).
• YF projects YOY 9.6% contraction and 4.4% growth for ’23 and ’24, respectively, along with 11.9% annualized growth for the next five years (13).
• Zacks projects YOY 6.5% contraction and 4.9% growth for ’23 and ’24, respectively, along with 10.6% annualized growth for the next five years (6).
• Value Line projects annualized growth of 2.9% from ’21-’26.
• CFRA projects 9.6% contraction YOY and 2.9% per year contraction for ’23 and ’22-’24, respectively (13).

My Forecast High P/E is 20. High P/E has ranged from 19.3 (’17) to 93.1 (upside outlier in ’15) since 2014. The last 5-year average is 25.6.

My Forecast Low P/E is 6. Low P/E has ranged from 4.9 (’19) to 31.3 (upside outlier in ’14) since 2014. The last 5-year average is 7.2.

My Low Stock Price Forecast is $36.50. This is the default value and 51% below the previous closing price. While this is more than the 20% rule of thumb, given the earnings contraction projected over the next couple years, I don’t see good reason to override (which would effectively be using a higher Forecast Low P/E).

All this results in an U/D ratio of 2.1, which makes BOOT a Hold. Total Annualized Return is 15.9%.

While the total return projection is impressive, PAR (using forecast average, not High, P/E) is a lukewarm 6.3%. I want more from a medium-sized company.

For added context, I like to assess margin of safety (MOS) by looking to Member Sentiment. Out of 120 studies over the past 90 days, projected sales, projected EPS, High P/E, and Low P/E average 10.7%, 9.8%, 21.9, and 8.5, respectively (two studies excluded with Projected High P/E’s of 100 and 2128, which skewed the average Projected High P/E to 39.8). I’m lower on all inputs. Same goes for the average projected low price of $41.90, which is $5.40 higher than mine.

Finally, Value Line has projected average annual P/E at 17 compared to my 13.

It will suffice to say that the MOS is alive and well in this analysis. I’m a buyer on a stock price below $66.

*—Publishing in arrears as I’ve been doing one stock study per day while usually posting two blogs per week.

Introduction to BetterInvesting

I mentioned BetterInvesting in the last paragraph here. This is something I plan to use to help manage individual stock positions as part of a longer-term portfolio.

I subscribed to BetterInvesting late last year after finding the organization in fall 2021. From their website:

> Today NAIC [National Association of Investment Clubs] is known as BetterInvesting, a 501(c) (3)
> nonprofit association that remains dedicated to helping individuals and investment clubs learn and
> practice our fundamental approach to stock investing. Passionate volunteers, who follow our
> principles and practice the SSG [Stock Selection Guide], teach our educational programs. The SSG
> is available online 24/7, making it even easier to study and invest in stocks.

I don’t think of it like a service to be sold as much as I do a tool for analyzing stocks. Their approach covers a wide breadth and if someone is going to do fundamental analysis to any degree, then something to organize all the inputs and a process guiding what to do with them can be extremely valuable. One could do without such a tool and if this is something you try, then I’d be interested to hear what you do to get all the information and just how long it takes.

Personally, learning the BetterInvesting approach has given me a process to gather relevant data and make investment decisions in 1-2 hours per stock. Prior to this, I really had no idea. If I wanted to make decisions based on fundamental analysis, then I could look at suggested buy lists, perhaps investment newsletters (which I think are generally a waste of money), and some other places.

In 2001, I developed a stock screen after some book reading that was effectively the beginning to managing my own portfolio. It took me about an hour per week and I fared well with it on an absolute basis. I never revisited this once I discovered options in 2006. While I’ve thought about rekindling the original stock screening effort in recent years, I have also become a true believer in classic fundamental analysis for longer-term purposes. This is more the BetterInvesting way.

Any explanatory content I publish under the category BetterInvesting might be better studied in the video education library on their website since I’m a new member rather than an official instructor or volunteer. I might actually like to become a volunteer if it got me out to the community to teach the process to other like-minded individuals.

This would then beg the question whether their process is the best? I think we’re far away from having enough information to answer that question with any validity. I believe having a process and sticking with something repeatable to optimize efficiency is probably as good as anything else.