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AMZN, the stock, is trading at a P.E. Ratio of nearly 300. http://finance.google.com/finance?q=NASDAQ%3AAMZN http://finance.google.com/finance?q=NASDAQ%3AAMZN

AMZN, the stock, is trading at a P.E. Ratio of nearly 300. http://finance.google.com/finance?q=NASDAQ%3AAMZN http://finance.google.com/finance?q=NASDAQ%3AAMZN Serious question: Considering that it nearly doubled over the past year, is it already too late to buy Amazon stock? Or not? What's the upside?

paulpauper 9y ago
So many people have gotten burned by betting against Amazon because it has a high PE ratio. When you remove the cap-ex , the PE ratio falls dramatically. https://greyenlightenment.com/not-worried-about-tech-bubble-and-how-hbd-can-be-used-to-beat-the-market/ https://greyenlightenment.com/not-worried-about-tech-bubble-... I think it goes to $2000/share soon (as in a few years). disclosure: long amazon
- icantdrive55 9y ago
  I'm beginning to wonder about Amazon in the long run. I know it's sacreligious, but Wallmart brought most of their prices down to Amazon levels, and offer free shipping on orders over $35, and no Prime yearly fee. Brick and mortar businesses are stepping up to the competition.
- dforrestwilson 9y ago
  The quote in that article disparaging MBAs is funny, because Amazon famously prefers lots of MBAs.
libertyEQ 9y ago
While AMZN might grow into their valuation eventually, there are many other equities that are seemingly undervalued given their current fundamentals. I wouldn't try to short AMZN, but I would look elsewhere for investment opportunities; and, while trite, the advice to invest using ETFs that spread your risk is probably a better strategy.
garmaine 9y ago
P/E is not a meaningful metric. The 10x rule of thumb doesn’t work for all companies. For one, not all companies have the same level of infrastructure—Amazon has a lot of warehouse and distribution infrastructure, not to mention all those AWS servers they own, etc. you should properly subtract that out before doing the calculation. Even still Amazon has a crazy high valuation, just not insanely high. Not sure I’d bet against it though.
- hidenotslide 9y ago
  P/E is a very meaningful metric. It's not that Amazon has infrastructure that matters, it's that they are reinvesting their earnings at a higher rate than other companies. If they returned capital to investors because they didn't have enough potential projects, then the investors would need to decide how to reinvest it. Your comment about reflecting the infrastructure in valuation would lean toward looking at Price/Book Value instead. Amazon would look quite expensive on this measure as well.
  - garmaine 9y ago
    My “not meaningful” point should perhaps been “can’t conclusively draw data from it alone” or “don’t make investment decisions based on this metric only” and I’d stand by that.
    - prklmn 9y ago
      P/E is without a doubt meaningful, and looking at it in the context of growth i.e. PEG, makes it even more meaningful. Amazon is selling at an objectively absurd PEG ratio of 5. Anything over 2 is fundamentally considered overvalued by people who use this metric. However, You could argue that none of the fundamentals are meaningful because we are in a bubble, with Amazon on the forefront.
  - __blockcipher__ 9y ago
    I generally prefer free cash flow yield (fcf / dollar invested), although both PE and FCF can be fucked with depending on how certain expenses are classified. That being said, if I had to choose one of the two, I would go with FCF yield every time.
IkmoIkmo 9y ago
Asking whether it's too late to buy I think makes no sense... if it were, immediately market forces would drive up the price. If it were too soon, immediately market forces would sell. You can ask anyone, any individual, of course and they'll have a particular answer which will differ. But I wouldn't be quick to trust a particular answer over the answer of the market (which IS the stock price), unless the particular answer is from a particular person, like a buffett, a domain expert or an alien from the future or someone with insider knowledge. At least, that's the theory haha. I know it's a shitty answer.
- WalterBright 9y ago
  The stock price at any point in time is set by about an equal number of investors thinking it'll go up as those that think it'll go down.
  - ryanx435 9y ago
    its not an equal number of investors, its an equal number of buy and sell orders at a certain price. an individual with a billion shares has more of an impact on a share price than an individual with one share.
    - WalterBright 9y ago
      Yes, you're right.
- c3534l 9y ago
  The mostly efficient market. You can get far picking stocks at random, but that doesn't mean it's better than having some idea about what you're doing. But for the most part it's about risk, not price. Price is usually about right, it's what you can afford to risk. I think Amazon's price went up because investors think they're about to battle Walmart. Wouldn't hurt to put a little in on both those companies.
arkis22 9y ago
I personally believe in Amazon, but their metrics are indeed obscene. I don't own any stock, and won't buy any until it pulls back at least 10%, and even then I'd be analyzing why it fell the 10%. The fact is it is rarely too late to invest in a company if you do it prudently. The difference is Amazon being your portfolio - and being part of your portfolio. Given its obscene metrics you shouldn't allocate a large percentage of your wealth in it. A good proxy would be index funds. You should really only have more of your wealth in Amazon than what would be allocated to it from something like an sp500 index fund if: 1. you are wealthy enough to take the risk 2. you are smarter than everyone else and know AMZN is a great stock By the way, chances are you aren't smarter.
- AznHisoka 9y ago
  if 1 and 2? or 1 or 2?
daxfohl 9y ago
It occurred to me last night that Amazon's next target could well be Google (search). I mean, how much money are they paying to google for ads? I could be wrong but I'd have to imagine they're Google'slargest revenue source now, possibly by a large margin. And they've got the expertise to do it in house. And I'm hearing more and more complaints about google these days. Amazon also seems more disciplined at listening to what users want than google is. I could see them first integrating it tightly with alexa, then calling it alexa.com, adding some spiffy new features and somehow pushing privacy as the number one thing (because they can because they aren't overly dependent on ad revenue, and because an amazon account seems more tangible than a google account (how many do I have) because they started in commerce and have your credit card and never tried to start a social network), then boom goodbye google.
- mrtksn 9y ago
  Is search still a thing? I mean, these days content is curated socially or algorithmically and thrown onto your face. I only google errors these days and if I'm looking for a product I would search the specific sites that I shop at. Google will show me the sites I visit anyway, but with less nicer presentation.
- 1stranger 9y ago
  They already did that over a decade ago. https://www.macworld.com/article/1039079/a9.html https://www.macworld.com/article/1039079/a9.html
matt4077 9y ago
Serious answer: don't pick a fight with the efficient market hypothesis. It might be wrong. But it has more money to have remain wrong, than you have to prove it wrong.

paulpauper 9y ago

So many people have gotten burned by betting against Amazon because it has a high PE ratio. When you remove the cap-ex , the PE ratio falls dramatically. https://greyenlightenment.com/not-worried-about-tech-bubble-and-how-hbd-can-be-used-to-beat-the-market/ https://greyenlightenment.com/not-worried-about-tech-bubble-... I think it goes to $2000/share soon (as in a few years). disclosure: long amazon

icantdrive55 9y ago
I'm beginning to wonder about Amazon in the long run. I know it's sacreligious, but Wallmart brought most of their prices down to Amazon levels, and offer free shipping on orders over $35, and no Prime yearly fee. Brick and mortar businesses are stepping up to the competition.
dforrestwilson 9y ago
The quote in that article disparaging MBAs is funny, because Amazon famously prefers lots of MBAs.

libertyEQ 9y ago

While AMZN might grow into their valuation eventually, there are many other equities that are seemingly undervalued given their current fundamentals. I wouldn't try to short AMZN, but I would look elsewhere for investment opportunities; and, while trite, the advice to invest using ETFs that spread your risk is probably a better strategy.

garmaine 9y ago

P/E is not a meaningful metric. The 10x rule of thumb doesn’t work for all companies. For one, not all companies have the same level of infrastructure—Amazon has a lot of warehouse and distribution infrastructure, not to mention all those AWS servers they own, etc. you should properly subtract that out before doing the calculation. Even still Amazon has a crazy high valuation, just not insanely high. Not sure I’d bet against it though.

hidenotslide 9y ago
P/E is a very meaningful metric. It's not that Amazon has infrastructure that matters, it's that they are reinvesting their earnings at a higher rate than other companies. If they returned capital to investors because they didn't have enough potential projects, then the investors would need to decide how to reinvest it. Your comment about reflecting the infrastructure in valuation would lean toward looking at Price/Book Value instead. Amazon would look quite expensive on this measure as well.
- garmaine 9y ago
  My “not meaningful” point should perhaps been “can’t conclusively draw data from it alone” or “don’t make investment decisions based on this metric only” and I’d stand by that.
  - prklmn 9y ago
    P/E is without a doubt meaningful, and looking at it in the context of growth i.e. PEG, makes it even more meaningful. Amazon is selling at an objectively absurd PEG ratio of 5. Anything over 2 is fundamentally considered overvalued by people who use this metric. However, You could argue that none of the fundamentals are meaningful because we are in a bubble, with Amazon on the forefront.
- __blockcipher__ 9y ago
  I generally prefer free cash flow yield (fcf / dollar invested), although both PE and FCF can be fucked with depending on how certain expenses are classified. That being said, if I had to choose one of the two, I would go with FCF yield every time.

IkmoIkmo 9y ago

Asking whether it's too late to buy I think makes no sense... if it were, immediately market forces would drive up the price. If it were too soon, immediately market forces would sell. You can ask anyone, any individual, of course and they'll have a particular answer which will differ. But I wouldn't be quick to trust a particular answer over the answer of the market (which IS the stock price), unless the particular answer is from a particular person, like a buffett, a domain expert or an alien from the future or someone with insider knowledge. At least, that's the theory haha. I know it's a shitty answer.

WalterBright 9y ago
The stock price at any point in time is set by about an equal number of investors thinking it'll go up as those that think it'll go down.
- ryanx435 9y ago
  its not an equal number of investors, its an equal number of buy and sell orders at a certain price. an individual with a billion shares has more of an impact on a share price than an individual with one share.
  - WalterBright 9y ago
    Yes, you're right.
c3534l 9y ago
The mostly efficient market. You can get far picking stocks at random, but that doesn't mean it's better than having some idea about what you're doing. But for the most part it's about risk, not price. Price is usually about right, it's what you can afford to risk. I think Amazon's price went up because investors think they're about to battle Walmart. Wouldn't hurt to put a little in on both those companies.

arkis22 9y ago

I personally believe in Amazon, but their metrics are indeed obscene. I don't own any stock, and won't buy any until it pulls back at least 10%, and even then I'd be analyzing why it fell the 10%. The fact is it is rarely too late to invest in a company if you do it prudently. The difference is Amazon being your portfolio - and being part of your portfolio. Given its obscene metrics you shouldn't allocate a large percentage of your wealth in it. A good proxy would be index funds. You should really only have more of your wealth in Amazon than what would be allocated to it from something like an sp500 index fund if: 1. you are wealthy enough to take the risk 2. you are smarter than everyone else and know AMZN is a great stock By the way, chances are you aren't smarter.

AznHisoka 9y ago
if 1 and 2? or 1 or 2?

daxfohl 9y ago

It occurred to me last night that Amazon's next target could well be Google (search). I mean, how much money are they paying to google for ads? I could be wrong but I'd have to imagine they're Google'slargest revenue source now, possibly by a large margin. And they've got the expertise to do it in house. And I'm hearing more and more complaints about google these days. Amazon also seems more disciplined at listening to what users want than google is. I could see them first integrating it tightly with alexa, then calling it alexa.com, adding some spiffy new features and somehow pushing privacy as the number one thing (because they can because they aren't overly dependent on ad revenue, and because an amazon account seems more tangible than a google account (how many do I have) because they started in commerce and have your credit card and never tried to start a social network), then boom goodbye google.

mrtksn 9y ago
Is search still a thing? I mean, these days content is curated socially or algorithmically and thrown onto your face. I only google errors these days and if I'm looking for a product I would search the specific sites that I shop at. Google will show me the sites I visit anyway, but with less nicer presentation.
1stranger 9y ago
They already did that over a decade ago. https://www.macworld.com/article/1039079/a9.html https://www.macworld.com/article/1039079/a9.html

matt4077 9y ago

Serious answer: don't pick a fight with the efficient market hypothesis. It might be wrong. But it has more money to have remain wrong, than you have to prove it wrong.