Is Amazon worth its price? No matter how you measure it, this company is overpriced at levels not seen since the first unicorns were spotted in the Colorado Rockies. In fact, the valuation makes no logical sense at all.
Amazon is a behemoth of a company. They are the world’s biggest online retailer by a long shot. Their revenue is roughly 105 billion. Yet, the barely make a profit. Their gross profits were only about 500 million for the year last year and that only got them earnings per share of $1.28. And, this is what is really eyebrow raising, their stock is trading at $800 per share. I had to look and relook at that about seven times until it finally sunk in. This stock is trading at a return on investment of almost .2%. That is 2-tenths of a percent. You could invest in a one year treasury bond and get a far better rate than that.
The total earnings per share over the past several years are as follows:
As these earnings show, there is not even consistent growth on a year-over-year basis. Instead, if you were to buy into this you would be buying the future earnings. But, given the earnings per share over the past several years, you can not even figure out with a reasonable amount of certainty what those future earnings are going to look like. And, the share price is so astronomically high as to being unrealistic beyond comprehension.
I wanted to look a lot deeper to see what else I might see. Here is a look at the revenue from the past several years:
All numbers in millions.
There is revenue and it is growing. But, the company would have to make a ton of more cash before it cold turn a decent amount of profit. Even if Amazon were to double its revenue that would not necessarily mean that the could double their profits per share. There may be some aspects of variable profits involved. Given that, even doubling the revenue would not necessarily mean that you could quadruple the earnings per share. And, even if that milestone was hit, that would only be $5.00 per share. That is still a tremendous way away from being realistic.
And, yet, the stock continues to go higher. Five years ago the stock was trading at $100 - $200 range. And, yet the profits were more than what they are now at $1.39 per share. So, in the course of five years there has been relatively no earnings per share growth. And yet the stock has multiplied by a factor of eight in that time period.
I keep a realistic perspective with my investments. You have to. But, every once in a while the market has something that defies logic. This company is one of those companies that defies convenient wisdom and instead acts like a Unicorn.
I have a very tough time recommending this stock to anyone. It would certainly not make it into my portfolio, at least not until there are some serious rebalancing moves from the stock and earnings side of this company. There are thousands of stocks to pick from. You are not required to choose a stock right this very minute and invest in. Instead, you have the ability to rely upon patience to sift through those thousands of companies. One of the things behind this stock is that it is popular. Investing in what you know is sage advice. But, just because you know the company does not necessarily make it a smart investment. I would think after looking at these numbers that would make sense to a lot of people.
|This media report from Macroaxis distributed on January 12, 2017 was a factor to the next trading day price appreciation.The overall trading delta against the next closing price was 0.43% . The overall trading delta when the story was published against the current closing price is 122.65% .|