The DCF Valuation of the company Amazon Inc shows that the company’s target price is $2,267.49, which as compared to the current market price of Amazon at $ 1752.79 is very high. The DCF valuation conducted is calculating the intrinsic value of the firm. This intrinsic value is the net present value of all the future expected free cash flows of the company that it has the capacity to generate. This intrinsic value shows how worth is the underlying stock of the business if the whole business is sold along with all of its assets.
It is thus good to buy the stocks of the businesses which are trading at a price which is way below their intrinsic value. The main idea behind this concept is that the market often yields irrational prices in the short run. However, in the long run, the market will produce the prices of the products which are representative of their actual value or worth. Thus, if an investor when buys a stock which is irrationally lower than its actual worth or intrinsic value, then they have the opportunity to sell it at a higher price when the stock is approaching its actual intrinsic value. Thus, using this method, investors can earn market-beating prices while not taking much risk. Thus, looking at the DCF valuation of Amazon Inc, it can be said that the company is very low priced at $1752.79 as compared to its actual worth or intrinsic value of $2267.49. Therefore, the recommendation would be to buy the stock and hold it until the company stock reflects near the intrinsic price (correct price) of the company.
It is therefore suggested that investors should buy the stock of Amazon In and sell it when it would come close to the price of $ 2267 in the future, which is its correct intrinsic value.
