Amazon’s stock (Symbol: AMZN) shot up over $30 a share today after Q1 earnings came back better than expected. AMZN finished the day at $226.85, a price that is mind blowing to me. I am a very heavy user of Amazon.com and I completely buy into everything as a consumer, but this stock now has a P/E of 186!
The concept of hypothetical growth is not lost on me, but any company that is pushing 200 P/E really does not seem like much of a discount to me. Especially a company that has been around as long as Amazon. This isn’t a young “whipper snapper” start-up, this is an established company. Even the EPS was to quadruple, it still wouldn’t seem to be much of a bargain. With pricing this high, the simply fact is that the market thinks Amazon is going to conquer the world. Amazon’s revenues are growing, but actual EPS still remains relatively weak.
Although I sit here and tell you that I think the stock price insanely high, I wouldn’t be surprised if this stock continued to grow on hopes and dreams. When it comes to investing, no one wants to “miss the boat.” That is also why Facebook’s IPO will most likely be a success. It’s not about fundamentals, it’s about speculation and getting on the bandwagon.
Full disclosure, I bought a long Amazon option a while ago but ditched it after getting cold feet on how weak the stock is fundamentally.
Also if we really are buying this hypothetical magical growth potential, it would be reckless not to consider some of the macro factors that could drastically change Amazon. Let’s start by considering the sales tax loophole, that many of Amazon’s customers enjoy. that is likely to get closed or the fact that the actual business model is highly reproducible.
It’s one man’s opinion, but I don’t like AMZN long at anything above $200 a share until the P/E is at least less than 100. The scary part is that if Revenue and EPS does indeed grow, would the P/E even go down due to even more market speculation? I think one thing is almost for certain, AMZN will be a highly violate stock the next 2 to 5 years. It’s getting close to sink or swim time.