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Amazon is the cheapest of the Magnificent Seven stocks by this important measure

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Large tech-oriented companies have resumed their dominance during this year’s market recovery, so it isn’t much of a stretch to refer to a core group as “the Magnificent Seven.” The group is led by Nvidia Corp., whose shares nearly tripled during the first half. But Amazon.com Inc. is an interesting stock right now, because it is the cheapest among the seven companies on a forward price-to-sales basis. And that measure has always been important for the stock.

To set the stage, here’s a look at how the Magnificent Seven and the S&P 500
SPX,
-0.29%

performed during the first half of 2023, with dividends reinvested:

Click on the ticker symbols for more about each company or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

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For investors who wish to look beyond the current Magnificent Seven, Barbara Kollmeyer’s Need to Know column on Monday highlighted what may be “the next Magnificent Seven,” according to analysts at Goldman Sachs.

Getting back to the current Magnificent Seven group, despite excellent performance so far this year for all, and for the S&P 500, four of the seven (plus the index) are still down from the end of 2021. And even Apple Inc.
AAPL,
-0.59%
,
with a 50% return during the first half, didn’t make the list of the top 10 performers among the S&P 500.

Then again, Apple did reach $3 trillion in market capitalization, underscoring how important the company is in the S&P 500, which is weighted by market cap. The stock makes up 7.7% of the SPDR S&P 500 ETF Trust
SPY,
-0.25%
,
which tracks the benchmark index.

A value case for Amazon’s stock among the Magnificent Seven

Leaving the group in the same order as they are listed above, let’s look at two valuation measures for the Magnificent Seven and then sales-growth projections through 2025.

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First, here are current forward price-to-earnings measures for the group, based on consensus estimates for the next 12 months among analysts polled by FactSet:

Company or index

Ticker

Forward P/E

Forward P/E at the end of 2022

Forward P/E at the end of 2021

10-year average forward P/E

Current forward P/E to 10-year average

Nvidia Corp.

NVDA,
+0.95%
48.70

34.45

57.98

34.22

142%

Meta Platforms Inc. Class A

META,
-0.50%
21.42

14.72

23.53

27.70

77%

Tesla Inc.

TSLA,
-0.76%
63.19

22.28

120.32

133.33

47%

Amazon.com Inc.

AMZN,
+1.11%
61.72

46.68

64.91

123.30

50%

Apple Inc.

AAPL,
-0.59%
30.04

20.53

30.23

17.95

167%

Microsoft Corp.

MSFT,
-1.19%
30.83

23.11

34.02

22.88

135%

Alphabet Inc. Class A

GOOGL

20.31

16.88

25.44

22.76

89%

S&P 500

SP50

19.27

16.78

21.47

17.60

109%

Source: FactSet

This set of data underscores how price/earnings ratios may not be especially useful for companies such as Amazon
AMZN,
+1.11%

and Tesla Inc.
TSLA,
-0.76%
,
which are more focused on expansion than they are at showing GAAP profits. During its decades of ascendance, Amazon frequently has shown net losses as it has plowed its cash flow into new areas of business, including Amazon Web Services, and into growing its core online offerings through organic expansion and acquisitions.

Read: Tesla just walloped delivery expectations, but there’s still one big unknown

The data also show that by this measure, when looking back at 10-year average valuations, Nvidia
NVDA,
+0.95%
,
Apple and Microsoft Corp.
MSFT,
-1.19%

appear to be expensive. But a look at forward price-to-sales ratios can shed more light on how investors are valuing these companies:

Company or index

Ticker

Forward P/S

Forward P/S at the end of 2022

Forward P/S at the end of 2021

10-year average forward P/S

Current forward P/S to 10-year average

Nvidia Corp.

NVDA

22.19

12.33

23.57

9.78

227%

Meta Platforms Inc. Class A

META

5.52

2.63

6.69

8.72

63%

Tesla Inc.

TSLA

7.22

3.34

14.35

5.48

132%

Amazon.com Inc.

AMZN

2.25

1.52

3.06

2.49

90%

Apple Inc.

AAPL

7.55

5.04

7.47

4.07

186%

Microsoft Corp.

MSFT

10.72

7.90

12.01

6.66

161%

Alphabet Inc. Class A

GOOGL

4.82

3.73

6.06

5.42

89%

S&P 500

SP50

2.39

2.12

2.84

2.04

117%

Source: FactSet

Amazon trades at the lowest forward price-to-sales ratio among the Magnificent Seven, by far, and it is even lower than that of the S&P 500. For the 10-year comparisons, Meta Platforms Inc.
META,
-0.50%

and Alphabet Inc.
GOOGL,
-0.52%

also appear to be inexpensive by this measure. But they don’t compare very well to Amazon, based on the next set of estimates.

Here are the expected compound annual growth rates (CAGR) for sales from 2023 through 2025. The numbers are consensus estimates for calendar years — and not every company’s fiscal year matches the calendar:

Company

Ticker

Estimated 2023 sales ($mil)

Estimated 2024 sales ($mil)

Estimated 2025 sales ($mil)

Two-year estimated sales CAGR through 2025

Nvidia Corp.

NVDA,
+0.95%
$41,091

$52,597

$64,215

25.0%

Meta Platforms Inc. Class A

META,
-0.50%
$126,190

$140,063

$154,346

10.6%

Tesla Inc.

TSLA,
-0.76%
$99,934

$129,436

$163,027

27.7%

Amazon.com Inc.

AMZN,
+1.11%
$560,333

$627,187

$703,423

12.0%

Apple Inc.

AAPL,
-0.59%
$390,853

$416,828

$446,622

6.9%

Microsoft Corp.

MSFT,
-1.19%
$223,528

$251,206

$284,116

12.7%

Alphabet Inc. Class A

GOOGL,
-0.52%
$299,965

$332,902

$366,512

10.5%

Source: FactSet

For the S&P 500, we looked at sales per share estimates:

Index

Ticker

Estimated 2023 sales per share

Estimated 2024 sales per share

Estimated 2025 sales per share

Two-year estimated sales CAGR through 2025

S&P 500

SPX,
-0.29%
$1,816.92

$1,902.83

$2,007.25

5.1%

Source: FactSet

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Tesla is expected to show the highest rate of revenue growth through 2025, followed by Nvidia. But some investors may shy away from these companies’ lofty valuations, for reasons Mark Hulbert discussed last week.

Among the Magnificent Seven, Amazon is in the middle of the pack with an estimated two-year sales CAGR of 12% through 2025, well ahead of the estimates for Meta and Alphabet (the other two with relatively low price-to-sales ratios relative to their 10-year averages).

Amazon appears to represent the best combination of price/sales valuation and expected sales growth among the Magnificent Seven.

Don’t miss: Investors are pouring money into this modified S&P 500 stock-market strategy



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