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It was not so long ago that Amazon.com (NASDAQ: AMZN) was setting new 52-week records all the way up to a high of $97.43. All the while I was bewildered as to how the market could overvalue something so much, and many were rationalizing to me why I just didn't get it. I still don't get it, even at today's 50% lower stock price.AMZN closed yesterday at $51.98 and it is down a few bucks in early trading to around $49.00. A year ago I posted Amazon is not worth a penny over $60 - and I think even less! for all the same reasons I would not look at it until it hits $30.00 now. You just can't pay a forward P/E or 33 into a lousy market for a retailer when the Wal-Marts (NYSE: WMT) of the world trade at a P/E of 15, and often less than that!
I think if anything in these troubled times Wal-Mart might be worth the higher premium just because it is far more predictable and looks increasingly more competitive. Hard to believe that is possible, but that is how the last few earnings reports came out.
Citi research analyst Mark Mahaney downgraded AMZN stock to "Hold" from "Buy." At the same time, he raised the price target from $52 to $60, because he's now basing it on 2010's expected results rather than 2009's.
Six months ago I posted Serious Money: Infuriated by Amazon numbers?! and perhaps a few investors were listening. It's just that every way I view Amazon, I see a great business with lots of potential -- that is also over priced! When that story came our AMZN was trading at a P/E or 70 -- just plain nuts!
I think Mahaney is behind the curve on AMZN and he could pick any numbers he wants to justify any position he takes; however, to justify these high price-to-earnings ratio's to me he must demonstrate the growth side of the equation and that he has not done.
From everything I have been able to ascertain Amazon's stock trades at a premium because the majority of the shares are in the hands of very few entities...Amazon insiders selling and stock buybacks too?
In any event, whether I am right or I am wrong about the current share price and potential of AMZN there are certainly a hundred better places to put your money; Amazon.com is not a must own stock.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I hold no position in AMZN or WMT.
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