Did The Underlying Business Drive Amazon.com's (NASDAQ:AMZN) Lovely 380% Share Price Gain?

By
Simply Wall St
Published
July 18, 2021
NasdaqGS:AMZN

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Amazon.com, Inc. (NASDAQ:AMZN) shares for the last five years, while they gained 380%. If that doesn't get you thinking about long term investing, we don't know what will. The last week saw the share price soften some 3.9%.

Check out our latest analysis for Amazon.com

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Amazon.com managed to grow its earnings per share at 85% a year. This EPS growth is higher than the 37% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. Of course, with a P/E ratio of 66.62, the market remains optimistic.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NasdaqGS:AMZN Earnings Per Share Growth July 18th 2021

It is of course excellent to see how Amazon.com has grown profits over the years, but the future is more important for shareholders. This free interactive report on Amazon.com's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Amazon.com provided a TSR of 21% over the last twelve months. But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 37% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before forming an opinion on Amazon.com you might want to consider these 3 valuation metrics.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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