The market is down, and Amazon.com (NASDAQ: AMZN) is down more than most -- 15% as I write. I think Amazon is still tremendously overvalued. If you give it a forward P/E of 35 to 40, which is way too generous (and more than its rivals), and you double last year's earnings per share to roughly $1.50, you will get a valuation of $52.50 to $60.00 per share; I remind readers that this is going forward.
Please keep in mind that this is what I think an enthusiastic AMZN investor might pay at the top. From my perspective, the stock does not deserve this high of a valuation. A multiple of 30 might be more realistic and still favorable, against earnings of perhaps $1.00 to $1.20. This view puts a value on the stock of $30 to $36. Therefore I think today's opening price of $90.87 is a joke, and it may be time to take the money and run if you own it. Amazon.com may be overvalued by over 100%!
Last night I posted Amazon's (AMZN) earnings not so impressive, and today investors have supported my thoughts. If you want to read evidence of wacky thinking, read the commentary on this post and you will see how distorted people's views can become. Amazon the company is a great place to sell merchandise; Amazon the stock may be something you should consider selling as well.
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
10-24-2007 @ 3:05PM
Joel said...
Amazon is playing the long game. Their Web Services are gaining popularity and I think they will be incredibly successful. Their mp3 service is excellent and has only begun to be tapped. They still dominate the online marketplace of new physical goods without any real competitors.
10-24-2007 @ 3:17PM
Sheldon L said...
Joel,
Thanks for your comments. Please consider that you can be correct in everything you said but that does not make it fairly priced today even if all that is true. The attributes you mention are what make the P/E double the market average. More than that is out of line. You just can't pay any old price, there has to be value!
10-24-2007 @ 7:09PM
Alex said...
Earnings at over 300% above a year ago and "earnings not so impressive?"
If that is not amazing then I don't know
what is. Some of you people have sawdust
for brains.
10-24-2007 @ 7:39PM
Sheldon L said...
Alex,
No sawdust - although can be dense at times. Seems to be going around. The increase you speak of is over a very bad, almost unprofitable quarter where AMZN earned 5 cents. THAT IS WHY they showed improvement. Q4 will not offer that comparison and will not show year over year 300% and may not show any.
AMZN carries a lot of debt and makes very little profit. A P/E of 100 is ONE HUNDRED YEARS TIMES EARNINGS - why would you pay that much???
AMZN still makes very little profit!
10-24-2007 @ 10:08PM
Sanjay Dalal said...
I posted an article today on Creativity And Innovation Driving Business:
Amazon.com Valuation - Over, Right or Under Valued - You decide
Amazon.com is of the top 20 Innovators I track on The Innovation Index.
Sanjay Dalal