Amazon’s ROE Analysis Over 5 Year Period
Stock Price Performance
Amazon has been a star performer over the last five years. The holding period return is an astounding 330%, from $790 to the current price of $3,400. The yearly returns are as follows:
2017: 53%
2018: 28%
2019: 14%
2020: 72%
2021*: 5%
Past Performance: Past Performance is not an indicator of future results.
Return on Equity
During this period, the company increased its return on equity from 10.95% to 20.84%.
Past Performance: Past Performance is not an indicator of future results.
Decomposing the ROE down into its key components gives us further insight. Consider:
Past Performance: Past Performance is not an indicator of future results.
AMZN's EBIT margin (upper right) has improved from 2.31% to 5.18% for the period. This reflects the improvement in its operating efficiency as a company. This is combined with an improved tax burden over the period. The tax burden is volatile, but the company is retaining a higher proportion of its pre-tax income. The company's interest burden (lower left) is also positive. Over the considered period, AMZN has exhibited more control over its interest expenses.
We also note a decrease in the company leverage ratio (upper left). This has been positive for ROE over the period because the deleveraging has contributed to better profitability derived from assets as reflected in the comapny's net margins. However, asset efficiency seems to have declined over the period. I.e. less revenue per unit of assets (middle). If Amazon can improve on this part of ROA, this will inevitably lead to further improvements in its ROE.
*2021 has been adjusted by using trailing twelve month values.
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
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