Since its high point in November 2021, Amazon ( NASDAQ:AMZN ) stock has been decreasing steadily. This year, it has done about three times worse than the overall market.
Is it possible that by 2023, the story will be different? Here are some fundamental and technical things you might want to think about.
Why Did It Go Wrong?
You can look at Amazon’s problems from different angles, but if investors want to believe in this story again, the company must first show that it can make money in the same way it used to.
The company made a lot of positive FCF each quarter for most of the last ten years. At one point, it even made more than $15 billion. However, FCF has been mostly negative lately, except for Q4-21.
The problem is made worse by the fact that the company’s finances have gotten worse. The ratio of financial debt to EBITDA has reached its highest level in a decade.
When investors are risk-averse, and a company has negative cash flows and more debt, they are less likely to pay the high valuation multiples that Amazon stock requires. Also, this is not a company that pays a dividend to compensate for losses, which could help ease the pain.
When it comes to cash flow, there are a few things to think about. For one thing, the rate at which sales are turned into operating cash flow has slowed down recently. The average number of these conversions was in the double digits in the past, but they are now at their lowest level in the last five years.
Where did this come from? As a starting point, they’ve not done a good job of controlling variable costs per unit. At the same time, fixed costs have gone up, but there needs to be more growth in revenue to make up for the investments in fix...
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