Saturday, February 06, 2016

Not Buying It

Over 5 years AMZN's price appreciation is more than 3X any of the indices.
I love shopping at Amazon, but its three-digit PE multiple (the current price of $502.13 is 402x earnings) has always prevented me from buying the stock. AMZN's priciness has persisted during bull and bear markets for the nearly two decades that it has been a public company, so something's going on here that some shrewd analysts (and the not-so-shrewd like your humble observer) don't understand.

Even an august financial publication like Barron's, which balked at recommending the stock at $319 in 2013, now refuses to make a call in either direction:
don’t expect us to double down on the skeptical view on we took a little over two years ago (“ Dangerous for Competitors—and for Shareholders,” Oct. 5, 2013). Shares, then $319, have made a punishing climb to a recent $502, and we’re trying to think of our safety word. Oh, right: valuation!
The Shepard Booster has flown and landed safely (Blue Origin photo)
My own take on last year's price run-up was that founder Jeff Bezos got tired of shareholder and analyst complaints about the lack of profitability. Amazon turned down the investment and R&D spigot in 2015, and the stock was off to the races when Amazon's profits took Wall Street by surprise. In 2016 Amazon will resume its old ways of going after "moonshots" (in Jeff Bezos' case the term is literally accurate; his company, Blue Origin, is working on and has successfully launched space rockets). We can only watch bemusedly.

One final word of advice to the Barron's writer, however. Don't use sarcasm unless 100% of your readership will get it---don't let your last sentence be
We predict Amazon stock will triple by Wednesday and double again on Thursday, on news that all those new stores will sell organic burritos, too.

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