Stock Market Rally: What does it mean for your portfolio?
21 July 2023 6 min read
5 min read
Published:
Updated:
Haider Saleem
Stock – Amazon.com, Inc.
Ticker – NASDAQ: AMZN
Sector – Tech
Halal – Yes
Why it’s a buy – ‘Big Five’ company
You want to buy Amazon stock, but you’re concerned if it is sharia compliant.
Let’s take a look at their financial results for its third quarter ended September 30, 2020.
We’ll use the figures from 12 months ended Sept 30 2020 on their balance sheet, for a better overall picture.
To consider if Amazon is Shariah compliant, we will use the following criteria which consist of qualitative and quantitative analysis. They include three financial ratios.
We will only apply the criteria/financial ratios in this article. If you want a detailed explanation of what each criteria contains, you can read our stock screening article. We also, have a halal stock screener course where you can access the materials anytime and it goes through step-by-step how to actually screen a stock (it helped me a lot).
Before we begin our analysis, let’s take a look at some of Amazon’s highlights:
Net sales increased 37% to $96.1 billion in Q3, compared with $70.0 billion in Q3 2019.
But how much of this $96.1 billion is halal?
Amazon is a tech company that focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence.
It would be impossible to go through the sales of each product and make a call (think about the number of items on its marketplace, videos on Prime Video, Appstore, etc).
There is clear grey area around what part of the business is halal or haram.
Like all big companies, there are serious ethical concerns, such as climate change, environmental reporting, habitats & resources, pollutions and toxins, arms & military supply.
Not to mention the continuous issue of how much tax it pays (or rather how little).
You’ll have to make a judgment yourself.
On the business side, it is halal with some haram aspects. We do not know the precise amount of haram income it gets. We also don’t know if it is under 5% of its total income. But given the scale of some of the sharia-compliant revenue sources, we would guestimate that the haram portion does not add up to over 5%.
On the ethical side, the list of allegations is endless, so you’ll have to make a moral judgment. Ultimately we think that that Amazon, like any large corporation, has some ethical questions to answer, but we could get comfortable investing in its stock.
If it’s also a pass for you, let’s move to the next stage.
This is the first of the three financial ratios we will use.
The total interest-bearing debt should not exceed 33% of total assets.
Total assets = $282,179m
Current liabilities (interest bearing) = $32,929m
Non-current liabilities (interest bearing) = 0
Total Interest liabilities = $32,929m
We then divide total interest liabilities ($32,929m) with total assets of the company ($282,179m) and x 100.
This gives us 11.66% which is well below the 33% magic number.
However, there is an alternative screening method for step 2, as discussed below.
An alternative way of step 2 is to compare interest-bearing debt to market cap – this is preferred by the AAOIFI.
We divide Total Interest-Bearing Debt ($32,929m) with the Market Cap of the company ($1.56t) and x 100.
This should be under 33%.
$32,929m/$1.56t*100 = such a miniscule number that my calculator broke.
It’s clearly under 33% – therefore Amazon passes this stage.
PASSES
Ultimately the approach you take on using either the total assets or the market cap depends on the methodology you choose. The scholars are fairly comfortable with either approach – especially in times of market volatility where numbers become abnormal and sharia-compliance thresholds might get triggered a lot as stock market prices seesaw up and down.
Our approach has historically been to prefer the total assets approach unless there are compelling reasons for relying on the market cap approach instead. This should be taken on a case-by-case basis.
Let’s go to the final step.
Illiquid assets should be at least 20% of total assets.
Illiquid assets = $169.210bn
Total assets = $ 282.179bn
The formula is: Illiquid assets/total assets*100.
So let’s do the maths, and…
Illiquid assets make up 59.7% of total assets, which is larger than the min 20% that we require.
Therefore, Amazon PASSES this step.
Passes
We at IFG take the view that Amazon stock is probably fine from a business perspective and definitely fine from a quantitative perspective.
A summary of our analysis.
For comparison, it seems that Islamic Investment Companies do not include Amazon in their investment portfolio, such as Wahed Invest and Iman Fund. and HSBC Islamic Funds. You can compare some funds on our Halal Investment Platform.
If you want a detailed explanation of what each criteria contains, then check out our halal stock screener course.
Drop a comment if you want further info.
Please note AAOIFI are currently revising their standards, so the above may be subject to change. Please find the AAOIFI standards here. Furthermore, you must screen each stock after new figures are released to ensure there are no changes to permissibility.
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