What's the thought on Amazon stock price? Is their dominance of the web built in to their price or does it have room for significant growth in the next 5-10 years?
Not going to lie, the numbers for Amazon's stock suggest that the stock price is absurdly north of earnings. While I'd love to buy into Amazon (one of the best services online imo), it'll need to break into some major new markets to start "justifying" that price to me.
Amazon's stock is expensive, however markets - investors - do not price stocks based on past results typically. Stocks are priced largely on future expectations. This has been particularly true in the case of Amazon for a long time.
They'll have near ~$30 billion in profit within the next four to five years, which will bring their PE down to a high, but not ungodly, 30x.
AWS is worth $300-$350 billion now. Very soon it will soon be larger than Oracle and it's growing extremely fast for a large business (a high multiple would be granted). Their ad business is worth $100-$150 billion. In the next four to five years, those two businesses together will be worth as much as the entire company is today. That's a big part of what investors are betting on, along with the expectation that Amazon is going to continue to find new profit centers.
Sure, you might say, why is Amazon priced for earnings four or five years out? Well, that's the standard practice of pulling future returns forward. Almost always happens with growth companies, inevitably leads to a stagnation period. Amazon will continue to grow into their market cap and their annual returns will drift downward.
I think Amazon the company is going to be fine. Bezos will adjust his business model when the growth slows down.
What everybody can agree with is that AMZN stock price is massively overvalued.
Amazon is on low margin retail business. Amazons market cap is 4751B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future.
US retail sales are $5 trillion.
Total retail sales across the globe are $22 trillion.
Amazon runs out of markets before current stock price can be justified.
Seems Amazon is taking the long view, and reinvesting their revenues. The opportunity for them is huge. Wall street doesnt care and would rather see quarterly profits. Good buying opportunity if you're interested in watching them take over everything in the next 5 years.
It's perhaps clear now, but pre-AWS, Amazon was a money losing company with no path to profitability. I went all in on amazon stock 5-6 years ago when the large tech company I worked for decided they were moving their large and very expensive cloud to amazon, and everyone else I knew at every tech company big and small was doing the same.
At the time, amazon stock was $400 a share - it wasn't reliably returning profits. AWS wasn't a significant proportion of their business. A lot of people still thought of amazon as a money losing retail company and a vestige of the original dot-com era. I told everyone I knew to invest in amazon because of AWS and it was very difficult to explain to people why it was going to beat the market. The fact that I found it difficult to convince people outside of tech that it was a good buy made me invest _more_ because I realized that 'the market' didn't fully understand the value of the company.
While I think Amazon could potentially grow their revenues 5x, I don't think it makes a lot of sense to own something that has to grow 500% to be fairly valued. To me that shows just how absurd their current valuation is. If I have a company grow 5x I'd like to think I'll make some money. In this scenario though, it just becomes fairly valued at that point.
Frankly, I'd love to own some Amazon stock. I think it's an amazing company with lots of potential. I just can't justify paying the current valuation. I'll probably regret it someday, but for now I'll stick with Apple and their 7 pe. Even if they lose all growth its worth much more than this. It's priced as if they are going out of business right now. I'd pay this much for either their iPhone or iPad business, not to mention having both, Mac, iPod, and anything new they come up with. They sold > 75 million devices last quarter. Doesn't exactly seem like a dying business to me.
What everybody can agree with is that AMZN stock price is massively overvalued.
Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price.
US retail sales are $5 trillion.
Total retail sales across the globe are $22 trillion.
Even if Amazon continues to grow at current pace, it runs out of markets to dominate before current stock price can be justified.
Bezos announced that he is unloading $1B per year. Smart man this Bezos guy.
I feel like I'm missing something. As of this moment (9:42AM PDT) Amazon's stock is up 5.6% for the day and near a 52 week high. That doesn't seem like panicky shareholders to me.
I'm not a stock maven, so it's possible that I'm missing some important detail.
I've done a quick and dirty analysis of Amazon's 10K over the past 3 years and it looks like they've been pulling in an average of 1.5 trillion in gross profit.
They seem to be relatively innovative - and always striving to be at the fore-front of technology. They're stock price has reflected this with pretty steady YoY gains.
With that said, should I invest in AMZN soon (Amazon.com, Inc. Stock Chart). I'm thinking about getting into it in a major way and I'm looking for some sound advice from fellow investors before doing so.
"It has given a return to it's investors. Up 655% in the last 10 years and 17,000% since inception."
Only if you sold the stock at that price.
OK, Amazon is clearly not Pets.com. It has growing revenues and some profits.
But Amazon famously has a higher P/E than many other technology and Internet companies. This is only justified if Amazon has a clear path to greater profits and dividends than those other companies in its future. The article points out its not clear what this path for Amazon might look like.
This also makes me think of Facebook. As we waited for Facebook to go public, many speculated that Facebook was still in the stage of rapid growth, and it didn't matter that revenue and profits were low because eventually huge profits were guaranteed with so many users. Facebook is a profitable company, but since it's gone public, revenue and profits haven't grown the way people thought, and the stock is still below its IPO price.
My point is lots of users, lots of customers, and lots of revenue are necessary preconditions for a company to be worth investing in. But at some point, growing profits has to be a concern, too.
Maybe the best way I can phrase it: Do you want to be Apple or Amazon? Apple found a path to high profit margins, high growth, and a business generating lots of cash, and now they are both buying back stock and paying dividends to share holders. With Amazon, the profits, cash, and dividends seem always in the future, yet Amazon has usually had a higher P/E than Apple. Which do you think is the better model?
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