Is Amazon.com Undervalued Amid Strong Profitability and Global Dominance in Broadline Retail?

In the ever-evolving landscape of global retail, Amazon.com (NASDAQ: AMZN) stands as a colossus, commanding a market capitalization that dwarfs its peers. Yet, as of late 2025, the question of whether Amazon is undervalued-despite its dominance-has sparked debate among contrarian investors. This analysis delves into Amazon's valuation metrics, profitability, and growth trajectory, juxtaposing them with those of Walmart (NYSE: WMT) and Costco (NASDAQ: COST), to assess whether the stock offers compelling value for long-term investors.

Valuation Metrics: A Tale of Two Ratios

Amazon's forward price-to-earnings (P/E) ratio of 36 appears modest compared to Costco's 54.4 according to data, yet it lags slightly behind Walmart's 34 as reported. While these ratios suggest Amazon is neither the cheapest nor the most expensive stock in its sector, they mask a critical nuance: Amazon's revenue growth and margin expansion. For instance, Amazon's EBITDA of $36.48 billion is 5.33x the industry average, underscoring its unparalleled cash flow generation. In contrast, Walmart's EBITDA, while robust, is not disclosed in the data, and Costco's profitability is constrained by its low net margin of 2.96%.

However, Amazon's price-to-book (P/B) and price-to-sales (P/S) ratios raise eyebrows. A P/S ratio of 3.42 is 1.95x the industry average, and its P/B ratio, though not explicitly stated, is implied to be high given its anticipated status as the world's largest company by revenue in 2025. Critics argue these metrics signal overvaluation, but such concerns overlook Amazon's structural advantages.

Profitability and Growth: The Engine Behind the Metrics

Amazon's gross profit margin of 48.85% for 2024 dwarfs Walmart's 3 according to analysis and Costco's implied margins. This disparity is driven by Amazon's pivot to high-margin segments like Amazon Web Services (AWS) and retail media advertising. AWS alone reported a 27% profit margin in 2023, contributing 29% of the global cloud market share according to industry reports. Meanwhile, Amazon's 11% year-over-year revenue growth in 2024 outpaces Walmart's 5.1% according to financial data and Costco's 8.17% as noted in market analysis, reflecting its ability to scale across e-commerce, logistics, and cloud computing.

Return on equity (ROE) tells a different story: Amazon's ROE of 5.79% trails the Broadline Retail industry average. However, this metric is skewed by Amazon's reinvestment of profits into growth initiatives, such as AI-driven automation and AWS expansion. In contrast, Costco's ROE is bolstered by its membership model but constrained by slower earnings growth.

Addressing Contrarian Concerns: High P/S and P/B Ratios

Skeptics highlight Amazon's P/S and P/B ratios as red flags. Yet, these metrics must be contextualized. Amazon's P/S of 3.42 is justified by its 20%+ year-over-year revenue CAGR as reported and its transition to high-margin services. For example, Amazon Prime subscriptions and advertising services now account for a significant portion of its gross profit. Similarly, its P/B ratio, while not quantified, is supported by its intangible assets-AWS, logistics networks, and data-driven retail ecosystems-which are not fully captured in traditional book value calculations.

Walmart and Costco, while trading at lower P/S ratios (0.94 and 1.51, respectively), face headwinds. Walmart's low single-digit revenue growth and Costco's reliance on membership fees suggest their models are less scalable in an era of rapid technological disruption.

Strategic Entry for Contrarian Investors

For value investors, Amazon's valuation presents a paradox: high P/S and P/B ratios coexist with strong EBITDA, gross profit margins, and revenue growth. The key lies in recognizing that Amazon's business model is no longer a traditional retailer but a diversified tech giant. Its AWS division alone is worth more than Walmart's entire market cap, and its retail media network is projected to rival Google and Meta in ad revenue.

Moreover, Amazon's debt-to-equity ratio of 0.44 is a structural advantage, enabling it to fund innovation without diluting shareholders. In contrast, Costco's P/B ratio of 17.50 and Walmart's 7.36 according to financial data suggest investors are paying a premium for less durable growth.

Conclusion: A Contrarian Case for AMZN

Amazon's valuation metrics may appear unattractive at first glance, but they fail to capture the company's transformative trajectory. Its EBITDA, gross profit margins, and revenue growth outpace peers, while its high P/S and P/B ratios are justified by its dominance in cloud computing and advertising. For contrarian investors willing to look beyond short-term multiples, Amazon represents a compelling opportunity to capitalize on its structural advantages in a world increasingly defined by digital infrastructure and e-commerce.