Gyroscopic Investing

Amazon consistently trades with a HUGE P/E.

Right now, it is trading at 283 times current earnings, with a forward P/E of about 95.

It just seems weird to me that the market has decided that this company is worth that much.  I get that they have a great business model and Jeff Bezos is a smart guy, but to me that should be worth a P/E of maybe 40-60, but no more.

As a point of reference, other high growth/high profile companies like Google and Apple are trading at about 15 times earnings.

That really is a wild P/E. I love Amazon as a consumer, but I wouldn't go near the stock.

Has anyone else noticed that lately, it seems like Amazon prices are not always cheaper than local stores?  We've actually started to find a lot of items where the local price beats Amazon's price.  I wonder if this is because Amazon is now paying sales tax in some states and wants to hide this from the consumer.

The wife and I use Amazon a ton for almost all of the baby items we purchased.  Believe me when I tell you that having a kid can cost a lot of money...  We are finding that now when an item is cheaper at Target, we feel like it's more convenient to have the option of returning it to a local store if it doesn't work out.  The hassle of returning things sometimes doesn't override the savings in sales tax.

I just did a quick once-over on the financials, and that valuation is pretty crazy.  Where do people think they are going to get the growth? Their margins aren't even very high from a quick glance.

Storm, I've noticed the same thing, also with baby stuff. As a result, I've started comparison shopping online a lot more than I used to, and have bough more stuff from brick-and-mortal stores. Amazon was trying to charge me like $20 for a basic garbage pail. Nutty stuff like that drove me right down to Target.

I'm glad someone already noticed this.  Some other valuations bother me, and MAYBE I could see valuations like this on a small company that just got a 50 year patent on fusion tech or something (jk... kinda).

But it's ridiculous.  I'd love for a CFA to explain this.

Not a CFA but the idea is they are going put almost all brick and mortor business....out of business. The idea is they will be the place everyone shops for everything.

People will go online to this site to get the lowest price and fastest delivery via drone.

The earnings growth is significant and the idea is it will actually accelerate.

I prefer businesses that are profitable now and buying those profits at a bargain, but.......Amazon could still be a great investment short or long term.

This is one company where current earnings truly aren't that relavent imo. Contrast that with fraudbook and Twiter which I think has zero chance of ever delivering what the market is pricing in.

I haven't bought because I don't like lotto tickets but if it fell back to $320 that would be pretty attractive support to buy off of. It would also be a nice 3 swing retrace hopefully sucking in shorts that sell the $340 breakdown and have to cover later.

I've got Amazon Prime, which is an amazing bargain at $79 or $99 a year.  The video streaming alone would be worth $99 a year to me, but when you add the free 2 day shipping it's probably the best $99 I will spend in 2014.

In addition to the free 2 day shipping, I have noticed that other shipping options are also much cheaper with Prime.

A few weeks ago, I began seeing the option for same day delivery for a small extra charge.  Thus, I have gotten into the habit of looking for things on Amazon before noon so that if I really like them I can get them by the end of the day for about $4-$8 extra.

My internet connection was driving me crazy last night so I decided to upgrade my modem and router.  I ordered them around midnight last night from Amazon and for $8 extra they were delivered this afternoon at about 5:00pm.

Amazon has started doing Sunday deliveries and I have gotten a few Sunday deliveries recently.  Pretty cool.

I ordered a desk chair last year on a Friday and for $2.99 extra I got one day shipping.  To my surprise, the next day I received the chair (I assumed that Friday one day shipping meant Monday delivery).  The box weighed about 60 pounds and had been shipped from a distant location.  I can't imagine what next day shipping on a 60 pound box for Saturday delivery would cost, but something tells me that it was a lot more than $2.99.

I don't think it's that Amazon is burying brick and mortar businesses because Amazon somehow isn't a brick and mortar business, but simply because Amazon has used its brick and mortar more efficiently and imaginatively.  For example, the reason I am able to get this stuff the same day is because Amazon has one or more gigantic distribution facilities near my city, which are made from brick and mortar, it's just that rather than an expensive retail location that I have to go to, they have a cheaper facility and deliver the goods to me.  It's not unlike the Domino's Pizza business model.

In any case, I like Amazon very much and I don't know how anyone is going to be able to compete with it, given how aggressive it has been in growing and refining its business model.

I still don't have a clue how they can afford to do the Prime thing for $79/$99 per year.  If a person didn't buy much and didn't use the video streaming, maybe it would be profitable, but for someone who buys stuff with small profit margins all of the time it seems almost too good to be true.  As far as the video streaming goes, I have Netflix and Amazon Prime Video and stream both through a Roku box.  It's gotten so that I almost never watch Netflix because the Amazon selection seems to have so much more that I like to watch, PLUS if I want to rent something I can do it easily and it's almost always cheaper than iTunes.  You can't rent anything for streaming from Netflix.

I think that a lot of people aren't aware of how well Amazon Prime Video stacks up against Netflix, but I assume they will find out sooner or later.

So I guess that Amazon's stock price doesn't puzzle me as much as it used to.

I'm just puzzled as to why you ordered a desk chair. I hope it's for someone else, as you're supposed to be standing!

I haven't had Prime since I ordered a minifridge a few years ago, for which the shipping cost would have equaled Prime. My wife and I each get the free trial of Prime about once each year and a half. I keep toying with the idea of buying it, especially the other week when it was on the cusp of $99. However, I'm afraid that I'll buy too much stuff once I lock in that hundred dollars. Also, we rent Netflix discs by mail and don't stream. We're cavepeople.

When I was frantically packing for the movers, I had some extra boxes and specialty tape delivered to the house, but the post office screwed up redelivery after redelivery, as they often do. I wrote to Amazon and asked if they could send it to my apartment (where there's a guard and a package room) and they overnighted a new order with no shipping charge. They asked me to return the original shipment to sender if it ever came. I delegated that to the Missus which was a mistake, because the P.O. talked her into paying $8.60 to return it. Really my fault because I tried to have her return it without the form since it was unopened. Unless you refuse it at the door, you cannot do that. I wrote to Amazon again and asked for the "standard refund", maybe $2, but they refunded me the full $8.60.

Amazon really is amazing, but with customers like me, I don't know how they make money...except that I spent $6995 at Amazon since I started using Mint in April 2010. Doesn't even count my wife's account. Extrapolate that back to 1997 and I guess I'm a customer worth keeping after all.

Why do people buy stock in Amazon? I guess they figure that right now the population is getting hooked on Amazon, and they can raise prices later. Sound familiar? 

MediumTex wrote: I think that a lot of people aren't aware of how well Amazon Prime Video stacks up against Netflix, but I assume they will find out sooner or later.

It will be interesting to see what happens if/when/how the whole net neutrality issue gets resolved.  That has the potential to blow up the various video streaming services' business models.

We somehow got Amazon Prime for free through a relative... pretty sure it's been over a year, and we've never paid anything.  So that's been a pretty good deal.    However, we don't order a ton of stuff and never use the video streaming so Amazon is still probably coming out ahead.  I just wish there was a way to use one Prime membership for two accounts... right now I have to login as my wife to place Prime orders.  But I can see how allowing multiple accounts would be problematic.

flyingpylon wrote: right now I have to login as my wife to place Prime orders.

Thats's not so bad, is it?

dualstow wrote:

flyingpylon wrote: right now I have to login as my wife to place Prime orders.

Thats's not so bad, is it?

In the grand scheme of things, no, it's not a big deal.  But I don't have access to some of my wishlists, and order notification goes to her instead of me, and things like that.  First world problems for sure.

Your wife can give Prime to you for free. The only restriction is that only the primary Prime member (i.e. her) can access the video. This is how my wife and I have it arranged and it works great. We squeaked in for $79 a year and it's worth it just for their Mr. Rogers catalog!

MediumTex wrote: So I guess that Amazon's stock price doesn't puzzle me as much as it used to.

The key is can they ever turn a profit. They can sell all the services and products they want and capture all the market share but can they ever raise prices enough or cut costs enough to turn a profit?

It hit $331 today. $320 looks attractive on the chart to me. I might place a limit order for 20 shares but I don't usually buy lotto tickets. The chart just looks very good for a move back up to $400 with a stop loss just under $310.

Here comes FireTV. You know it's going to be cool because there's no space between "Fire" and "TV".
http://time.com/46815/firetv-amazon-tel ... -revealed/

lol. myBad.

I know Amazon has "some irons on the fire," but they NEED those irons to so much as justify their current price, much less make it something that we can with any sort of confidence expect to meaningfully outpace VTI or something.

Is there an example of a large-cap company with so much existing market share in its main arena with such an abysmal P/E coming out of it and solidly beating the overall market?

If this were a small-cap stock, with more ideas than robust fundamental financials, I'd totally get it, but they're a large cap stock trading like they're some start-up with amazing ideas that just have to be put into fruition to be realized in the financials... and in SOME ways they have those elements, but as a percentage of their overall business size, I don't see that justifying such an asinine price to the point of it actually being something worth speculating in above/beyond VTI or something.

I hope to be proven wrong so I have something new to learn about speculating...

Amazon, in Threat to UPS, Tries Its Own Deliveries
An Alternative to Shippers Like FedEx and UPS, New Service Could Deliver Goods the Same Day as Purchased

http://online.wsj.com/news/articles/SB1 ... 2792859890

Well, that would solve my post office problem for everything but a few third party orders.

I think amazon has a solid business and will one day start to turn a large profit should they choose to. I would wager being able to break even lon most sales to bbe able to keep market share is a great strategy.

With that I've decided to buy some stock with the downturn in price YTD.

blueskieslover wrote: I think amazon has a solid business and will one day start to turn a large profit should they choose to. I would wager being able to break even lon most sales to bbe able to keep market share is a great strategy.

With that I've decided to buy some stock with the downturn in price YTD.

Amazon has a profit margin of .5% (yes, half a percent).  Overstock has 1.2%.  eBay 17.7%.  Amazon is pulling a Japan, Inc. in going after market share instead of profit; how well did that work out for the Japanese?

The trailing P/E is also 480.51.  How well did buying P/E's that insanely high work out in 2000?

People invest in Amazon because they don't know how to value a stock.  What you pay for a stock determines how much the future discounted streams of cash flows you will receive as a shareholder will contribute to your total return.  In Amazon's case, it is decidely negative, because high P/E stocks never stay high (people lose their blind hubris that it will ever pay back 100% of their capital in 480.51 years and cause terminal P/E deflation).

So in summary, Amazon is a great business for consumers, but terrible for employees and shareholders.  Costco, which has a similar model with low margins but pays all employees the same $16 living wage at expense of shareholders, is a relatively better investment.  In Costco's case, it saves more on employee loyalty by not having to always train new employees to justify the higher salaries; a concept old school-rightwing-Friedman-style-Ivy-League-MBA-lemming-capitalists have yet to grok.  Gee, there's actually more to a successful business than just pleasing the shareholders?  Whodathunkit!

MachineGhost wrote: Amazon has a profit margin of .5% (yes, half a percent).  Overstock has 1.2%.  eBay 17.7%.  Amazon is pulling a Japan, Inc. in going after market share instead of profit; how well did that work out for the Japanese?

The trailing P/E is also 480.51.  How well did buying P/E's that insanely high work out in 2000?

People invest in Amazon because they don't know how to value a stock.  What you pay for a stock determines how much the future discounted streams of cash flows you will receive as a shareholder will contribute to your total return.  In Amazon's case, it is decidely negative, because high P/E stocks never stay high (people lose their blind hubris that it will ever pay back 100% of their capital in 480.51 years and cause terminal P/E deflation).

So in summary, Amazon is a great business for consumers, but terrible for employees and shareholders.  Costco, which has a similar model with low margins but pays all employees the same $16 living wage at expense of shareholders, is a relatively better investment.  In Costco's case, it saves more on employee loyalty by not having to always train new employees to justify the higher salaries; a concept old school-rightwing-Friedman-style-Ivy-League-MBA-lemming-capitalists have yet to grok.  Gee, there's actually more to a successful business than just pleasing the shareholders?  Whodathunkit!

+1, and the day AMZN gets revalued comes sooner or later. When it gets revalued to the WMT (P/S) level (and WMT has much higher margins, so its questionable if even this is a fair price) its worth 10-20% of what it is now. When you look at Alibaba you see that AMZN gets no market share in china, so growth in revenue is limited, because it is already very big in US and europe.
I would use every upspike in the stock to short it.