Tap Amazon ETFs on Stock-Split & Buyback News

On Mar 9, Amazon AMZN gave a nice surprise to the investing world, announcing its first stock split since the dot-com boom. The tech giant and online retailing behemoth announced that its investors will receive 20 shares for each share they currently own. The stock soared 6% in aftermarket trading. The company also said the board authorized it to buy back up to $10 billion worth of shares.

While stock splits do not fundamentally alter anything about the company, it opens the doors for retail investors, who are a little tight on budget to own the stock. Shares post stock split become accessible to a larger number of small-budget investors due to cheaper price. Amazon shares are currently priced at $2785.58 apiece.

Amazon is the latest highly valued tech company which walked the split path due to the sky-high prices of a single share, per a CNBC article. Google parent Alphabet (GOOGL) announced a 20-for-one split in February. In mid-2020, Apple announced plans for a four-for-one split, and Tesla told investors that it was instituting a five-for-one split, as quoted on the CNBC article.

According to a recent Wall Street Journal report, “billionaire activist investor Dan Loeb, who’s been adding to his Amazon holdings, told investors on a private call that he sees about $1 trillion in untapped value at the company,” the CNBC article also pointed out.

What Do Indicators Say About Amazon’ Valuations?

Going by valuation metrics, P/E (ttm) of AMZN is 42.4 times versus the industry-average of 23.1 times. Forward P/E of AMZN is 53.2 times versus the industry score of 24.1 times. Though these measures point to the higher valuation of Amazon than the industry, a higher P/E is always not a sign of worry. It shows investors’ confidence in a particular stock among the bunch.

Investors should note that return-on-equity of Amazon is 28%, higher than industry average of 17.4%. Plus, both return-on-assets and return-on-capital of Amazon are higher than the industry measures. The estimated 3-5 year EPS growth of Amazon is now 24.8% versus 15.5% of the industry measure.

Investors should note that the AMZN stock has a Zacks Rank #3 (Hold). It has a Growth Score of A at the time of writing with a Momentum Score of A (note that A rating is the best). To tap the optimism, investors can play Amazon-heavy ETFs as the basket approach reduces company-specific risks.

Amazon-Heavy ETFs

ProShares Online Retail ETF (ONLN) – AMZN takes the second spot with 23.69% weight.

Consumer Discretionary Select Sector SPDR Fund XLY – AMZN holds the top spot with 22.71% weight. The fund has a Zacks Rank #2.

Fidelity MSCI Consumer Discretionary Index ETF FDIS – AMZN occupies the first location with 22.33% weight. FDIS has a Zacks Rank #2.

Vanguard Consumer Discretionary ETF VCR – AMZN occupies the first location with 20.99% weight. The fund has a Zacks Rank #2.

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