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"Maybe once in a blue moon a company with P/E of 500 is justified because they MAY be the next Google or Apple or Microsoft" What about a company with a size o

"Maybe once in a blue moon a company with P/E of 500 is justified because they MAY be the next Google or Apple or Microsoft" What about a company with a size of $100Bs and PE of 500? :) Everybody knows who I'm thinking of ...

sheetjs 13y ago
Companies can "grow" into the valuation by actually making more money (enough to justify the market cap), which is what many people believe will happen with Amazon As for parent comment regarding WS / SV, I see WS as the TicketMaster of the business world: they end up taking the flak for all of the various practices, when in fact other entities (like VC firms) are also pushing for the IPOs and other questionable practices
- adventured 13y ago
  It's entirely plausible Amazon will grow into its current valuation. What that really means however, is the stock will produce at best a zero return for the next decade. In the case of massive overvaluations, the future gains are merely pulled forward. If we give Amazon a huge benefit, and say that ten years from now it deserves a 50% higher PE than Walmart currently enjoy (during a huge bull market); spot their future PE at say: 21. They need to generate nearly $8 billion in net income. Once again give them a huge benefit and say they can hit a 5% to 6% net income margin against their sales (Walmart tends to be in the low 3's). They need to get to $160b in sales in ten years, with excellent margins (for what they do). Possible? The sales definitely are, the margin will be hard to hit. That's the good scenario, and if they pull off that good scenario, the stock only breaks even in nominal terms; inflation adjusted it might be down by 1/3.
Cookingboy 13y ago
Haha, although I do believe in Jeff Bezo and Amazon's vision, the current valuation is very high. I can see Amazon one day reaching Google's current profitability, but there is no way the P/E ratio would maintain close to what it is now (other wise Amazon would be worth about 10 TRILLION dollars). So the effect is that even if Amazon is tremendously successful in the future, the stock will probably experience a period of "relative stagnation" as the value of the company catches up to the tremendous valuation, then gradually grows proportionally with the profitability of the company.
- sheetjs 13y ago
  P = P/E * E. It's possible for AMZN's PE to fall to Apple levels without affecting the market cap (merely by making more money)
- adventured 13y ago
  Google is at about a $13b annual profit run rate these days. Amazon would need sales of $250b to $325b to hit that level. Needless to say, that's a very, very, very long ways off: maybe decades.
gfodor 13y ago
amazon's valuation should be viewed through P/FCF not P/E. Bezos plows everything back into the company, they have plenty of free cash flow.

sheetjs 13y ago

Companies can "grow" into the valuation by actually making more money (enough to justify the market cap), which is what many people believe will happen with Amazon As for parent comment regarding WS / SV, I see WS as the TicketMaster of the business world: they end up taking the flak for all of the various practices, when in fact other entities (like VC firms) are also pushing for the IPOs and other questionable practices

adventured 13y ago
It's entirely plausible Amazon will grow into its current valuation. What that really means however, is the stock will produce at best a zero return for the next decade. In the case of massive overvaluations, the future gains are merely pulled forward. If we give Amazon a huge benefit, and say that ten years from now it deserves a 50% higher PE than Walmart currently enjoy (during a huge bull market); spot their future PE at say: 21. They need to generate nearly $8 billion in net income. Once again give them a huge benefit and say they can hit a 5% to 6% net income margin against their sales (Walmart tends to be in the low 3's). They need to get to $160b in sales in ten years, with excellent margins (for what they do). Possible? The sales definitely are, the margin will be hard to hit. That's the good scenario, and if they pull off that good scenario, the stock only breaks even in nominal terms; inflation adjusted it might be down by 1/3.

Cookingboy 13y ago

Haha, although I do believe in Jeff Bezo and Amazon's vision, the current valuation is very high. I can see Amazon one day reaching Google's current profitability, but there is no way the P/E ratio would maintain close to what it is now (other wise Amazon would be worth about 10 TRILLION dollars). So the effect is that even if Amazon is tremendously successful in the future, the stock will probably experience a period of "relative stagnation" as the value of the company catches up to the tremendous valuation, then gradually grows proportionally with the profitability of the company.

sheetjs 13y ago
P = P/E * E. It's possible for AMZN's PE to fall to Apple levels without affecting the market cap (merely by making more money)
adventured 13y ago
Google is at about a $13b annual profit run rate these days. Amazon would need sales of $250b to $325b to hit that level. Needless to say, that's a very, very, very long ways off: maybe decades.

gfodor 13y ago

amazon's valuation should be viewed through P/FCF not P/E. Bezos plows everything back into the company, they have plenty of free cash flow.