To be fair Amazon is profitable, but their stock is extremely inflated by over speculation. The idea is still the same. Dump cash into the stock and hope others do the same driving up the price of the stock in the hopes that you can drop it before the bubble pops.
Nobody is challenging Amazon because their Earnings Per Share are...
-0.20. Negative 0.20.
Investors lump AMZN with GOOG and the like but GOOG's EPS is 33.59. TGT? 4.26. Walmart is 5.07.
No other company with a market cap (100+Bn) as large as AMZN is allowed to get away with that. The only one that comes close is Vodafone, with a tiny positive EPS (0.13).
It's important to note that if any other company spent until their EPS was negative, investors would flip.
Amazon is playing with razor thin margins while trying to scale up a platform to end all platoforms that we might someday use for everything without thinking about it. On that day/year/eon dollar bills might as well be printed with Jeff Bezos' face on them.
Amazon won't be using UPS and Fedex trucks on that day. They'll be using Amazon trucks. You'll know that era when you see it, I think.
If you're Walmart or Target its hard to justify it at this point, the stock could take a major dive from such a risk. They're at the "Ask-questions" phase, and the questions are always "What's the profit?" because these are publicly traded companies. Amazon has been playing it risky since the get-go.
Bezos is in for a very long gamble, and that frustrates the hell out of some investors, but its lofty enough to still attract investment dollars while in the "build-first" stage. Hopefully they can pull it off for a few more years before the stock market shifts to "Ask-questions."
So that's why. Amazon is doing something bold that would cause the mother of all stock dives in any other 100+Bn company. They get a free pass because Bezos is convincing and for Amazon its sort-of-always-been-this-way. Walmart/Target/Etc do not have either of those luxuries - the incredible (or believable) visionary and being a company that's still in burn (build) mode.
I like Amazon, but with a PE of 90, I can't make myself buy them.
At some point in the future, when all their growth is behind them and they become a value investment as opposed to a speculative investment, they need to make me between 5% and 10% on my money if I buy the whole company. That's how I evaluate stocks. That means a PE of 10 to 20.
In what year do we believe that Amazon will be making 5X to 9X what it's making now, given it's current maturity? If that year is near, than, sure, perhaps buy here. I just can't imagine that kind of growth for such a large company.
I've said similar things about Amazon, but I never had the balls to bet against Bezos and I'm glad I didn't. Even at 10x the earnings Amazon would still be a tenuous bet at its current market cap. I know the whole "ecommerce is a bear" and all that, but let's be real here; it isn't that much of a bear and Amazon is selling cheap Chinese shit. They're going to go the way that Ebay did.
With AI and cheap energy logistics is going to go to become irrelevant with respect to total cost and at that point what do I need Amazon for? I'll be able to ask my phone to re-up my staples and for everything else I'll purchase from the manufacturer directly. All the profit is going to go to attention and trust, which means profits are going to be centred in high value brands and influencers. If anything, I'd prefer the opposite of Amazon. Some online store that just sells the best two of _everything_ that's irrelevant (toothpaste, etc) so I don't have to think about it. Plus AWS is overblown. Sure it's got good financials, but over time, AWS is a commodity play and commodity plays lose margin over time. There is some lock-in, but it's hard to lower prices for newcomers without reducing prices for the locked-in.
But back to Tesla: You're right. It's not smart to bet against Musk. It will stay irrational for some time because great men like Musk will make the very most of their situation. Also, with this volatility I wouldn't go with puts. Leveraged shorts or selling calls sound like much smarter plays if you are going to bet against TSLA.
What would you do with that 5%? Would you reinvest it if you don't have any consumption needs now? Amazon is reinvesting their earnings. P/E isn't a good metric for a growth stock.
If Amazon stock goes to $0, all that says is that literally nobody wants to buy Amazon stock.
You still own your shares. You were not robbed, your gamble did not pay off.
Also, for this to happen, Amazon would have to be very very very bad at doing its job, which is to sell products for a profit. A company that is that bad at doing its one job has no god-given right to remain liquid.
I meant in more general terms for Amazon. Their margins are incredibly low, their P/E ratio is way out of whack, and they seem to epitomize the old "we'll make it up on volume" angle that proved so helpful in 2000.
Maybe they just want to be like a grocery chain that ekes out a 1-3% margin. But if that's the case, Wall St. won't be happy. Wall St. expects outsized profits based on their P/E ratio.
But due to their relatively low P/E, they don't even need to grow that much to still be worth. Their current P/E is not forecasting a huge growth in the next years.
It's not the same for, say Amazon. They'll need to earn 5x more to get back in the "standard zone". So investors seem to think Amazon still has a huge growth forward.
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.
P/E is a crude tool sometimes, and it's important to know it's limits of utility. Amazon, for example, has more than 10x the revenue of Facebook and has been undertaking a great deal of expansion, hiring, and investment in recent years, which has kept it's earnings relatively depressed. More so, the future growth potential of Amazon is very straightforward. They will almost assuredly garner a larger portion of the retail goods market over the coming years, especially throughout Europe, Asia, and South America where they have only recently started making inroads. More so, their digital goods businesses (eBooks, MP3s, video on demand, PaaS hosting, etc.) are on track for a hefty amount of growth as well. More so, Amazon is an enormously diversified business. Betting that Amazon will continue to execute well in enough areas to continue to expand immensely and to bring in enough profit to warrant today's seemingly inflated P/E ratios is not actually that crazy of a bet. Amazon's market cap is only around $100 billion total, which is barely twice Amazon's annual revenue.
Now, compare that to Facebook where they already have more than 10% the population of the entire Earth as users and yet have less than $4 billion in annual revenues and yet are slated to IPO with the same market cap as Amazon. In order for that bet to make sense Facebook would need to grow its business by one or two orders of magnitude and dramatically change their profitability structure. In short, they would need to fundamentally transform their business. That's the bet that people are making when they buy facebook at a 110 P/E ratio and to me that seems a lot riskier than the Amazon bet.
In a way Amazon is an absurd object lesson - their P/E ratio isn't far from double Facebook's and Facebook was five times as profitable as Amazon last quarter. If anything, Amazon shows that as long as you're profitable and retain a controlling stake in the company, the media's and Wall Street's much-vaunted expectations aren't worth a damn.
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