Amazon.com, Inc. (AMZN), Barnes & Noble, Inc. (BKS), Books-A-Million, Inc. (BAMM): Are These Book Sellers In Trouble?

Neither of these book sellers are in near-term danger of bankruptcy, although if the trends continue they may be in a couple of years.

Completing the picture

For the sake of completeness let’s look at the Z-score for Amazon.com, Inc. (NASDAQ:AMZN):

As expected the Z-score is well within the safe-zone, but one interesting point does emerge. The bulk of Amazon.com, Inc. (NASDAQ:AMZN)’s Z-score is derived from D, the term which includes the market capitalization. The fact that Amazon has an enormous market capitalization relative to its profits is the only reason why the Z-score isn’t much lower.

Because of this the financial picture isn’t really that great. If Amazon were a $40 billion company today, which is still 28.5 times the highest EBIT from the past 5 years, the Z-score would be 3.02, just barely in the safe-zone.

Now I’m not suggesting that Amazon is in danger of bankruptcy, but in this case the vanilla Z-score doesn’t tell the whole story.

The bottom line

Even though both Barnes & Noble and Books-A-Million, Inc. (NASDAQ:BAMM) have struggled as of late, neither company is in any immediate danger of bankruptcy. Barnes & Noble should be able to reduce its losses this year as it scales back and hopefully eliminates its tablet business, greatly improving the financial condition of the company. Although Amazon has killed many booksellers so far, both of these companies will likely be fine for at least a few years. In the long-term I think that Barnes & Noble is the better bet given its size, as there’s likely room for one national brick-and-mortar book chain. But any near-term bankruptcy fears are overdone.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.

The article Are These Book Sellers In Trouble? originally appeared on Fool.com and is written by Timothy Green.

Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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