IB Traders Insight Options Is Amazon Still Amazing? At the turn of the century a truly revolutionary concept in retailing took hold. Customers could select from a seemingly unimaginable array of goods and have them shipped promptly to their doorsteps. Indeed, Sears Roebuck enjoyed great popularity with consumers and investors alike in its heyday, though its status as a revolutionary retailer now seems quite archaic. Competitors eventually learned to adapt, catching and surpassing the behemoth. As the Internet achieves a ubiquitous maturity, it becomes less apparent why a website is all that different from a catalog. Yes, the technology is vastly improved and allows more immediate gratification, but that can be said for many innovations in the past century. Yet Amazon still retains an above-average valuation even for an Internet name. Its trailing P/E, before Thursday’s dip in share price rendered the statistic obsolete, was 824. The estimated P/E growth is about 4 according to Bloomberg data. For those taught that a company’s P/E ratio and expected P/E growth should be similar, this is a very difficult difference to reconcile. For these reasons, AMZN is a risky stock. If investors begin forgoing an “Internet” valuation for more conventional metrics, the stock could be subject to further adjustment. Were the market to recalibrate its metrics at once, the change in share price could be swift and significant. The stock remains risky even if AMZN shares were to continue the gentler downward trading pattern observed since the start of the year - with periodic rallies in the price of the stock wiped out by negative earnings surprises. Many people enjoy shopping at Amazon. I do too. But great companies do not always make safe stocks. (Link to original post: ow.ly/Diwsz)
Posted on: Fri, 24 Oct 2014 17:59:55 +0000