We use Amazon.com (NASDAQ: AMZN) all the time, almost everyone does. But there are many things we use just as much or more. So why does this stock have such a wacky valuation?
Why, when I ask for someone to explain these numbers to me do I just get rhetoric like "you just don't get it" screamed at me. That's a stupid response! Of course I don't get it - I know that. But I would like to learn why this stock is valued differently than all other stocks?
Here are some numbers I don't understand:
- Price/Earnings (TTM) 116.19
- Price/Book (MRQ) 53.16
- Price/Cash Flow (TTM) 61.38
These numbers would be ridiculous even if earnings were 400% higher. At Amazon's current P/B it is not worth 2 cents on the dollar - yes I don't get it at all. Is there anyone willing to explain it to me?
Let's look at two other high flyers I have written about often, for comparison:
- Price/Earnings (TTM) 43.33
- Price/Book (MRQ) 8.47
- Price/Cash Flow (TTM) 45.27
Intuitive Surgical (NASDAQ: ISRG)
- Price/Earnings (TTM) 64.31
- Price/Book (MRQ) 8.73
- Price/Cash Flow (TTM) 39.93
Google and Intuitive are both fantastic companies, with at least as much opportunity going forward as Amazon, if not more! No way is Amazon worth what people are paying from my perspective. I'm not convinced it is worth half, but I am open minded and would be overjoyed to have an explanation. When I checked insider trading I found 30 sales and 1 buy among officers and directors. The public might be laping up shares of Amazon but insiders are not.
John Maynard Keynes said, "The market can stay irrational longer than you can stay solvent." I am glad I remembered this before I tried to short Amazon at $62 like I was considering. Amazon closed yesterday at $70.42 and is up over $2 per share as I write this post.
Disclosure: I own shares of Intuitive Surgical.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here
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Reader Comments (Page 1 of 1)
6-05-2007 @ 7:15PM
CrossProfit said...
Perhaps you read our article (www.crossprofit.com/article.asp?id=59 ) and refrained from shorting at $62.
Then again, if you had read the article "How to Short Amazon", you wouldn't be asking these questions. Read it and read the first article written back in February 2007. (Link to first article in above article).
If the above link doesn't work, go to http://www.crossprofit.com and look-up symbol AMZN.
TheStreet.com recommended this article a few weeks ago. Let us know what you think by posting a comment (on this board). We have activated the reply notification.
CrossProfit
6-05-2007 @ 8:01PM
Sheldon L said...
CP,
All I got out of your site/articles is that AMZN goes a little higher and then it will crash and burn. I am not aking at what price to short the stock...that is not my M.O.
What I am asking is how anyone can bid up this already overpriced stock, that has low margins, and no way of raising them. And I have yet to get an answer.
6-05-2007 @ 9:27PM
CrossProfit said...
Sheldon,
The answer is in the article.
There is no connection between fundamentals and the stock price, as stated in the article. This is a mini replay of dot.com 2000. Institutional investors/mutual funds are behind this, with the blessing of AMZN.
It is a game of chicken. The public is still shorting in mass and doing so on margin. Currently a full 18% of float is shorted. Once the shorts are taken out, at a handsome profit for the institutional investors, the funds will orchestrate a fall taking out longs on margin. The small investor loses in both directions.
Unless you have enough capital to back-up your short, you will get burned. Stay away at all costs from a 'long term long' position.
All of the above and more are in the article. Read carefully as we have said enough.
CrossProfit
6-05-2007 @ 10:00PM
Sheldon L said...
Thanks for taking the time to write...I get it CP, basically you agree with me that this company is not worth anywhere near the current price and it will make the last ones out very sad.
I would still like to hear from the madman buying or even holding on at this level. Perhaps you are right to call it a game of chicken.