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Price to Earnings (P/E) is literally the least relevant metric to use for Amazon. Given the company's very public approach to seeking zero net earnings (while m
by ericglyman 12y ago
Price to Earnings (P/E) is literally the least relevant metric to use for Amazon. Given the company's very public approach to seeking zero net earnings (while maximizing capex/investment), the denominator will always skew the ratio to levels that make it non-meaningful.
EV/Sales (LTM and Forward) are much more in line with other comparables.
- mbesto 12y agoI don't think you understood the OP's point correctly - their forward P/E, aka what earnings the investors expect the company to make in the future, is abnormally high, thus indicating investors are still quite bullish.
- ericglyman 12y agoI understood it. Forward P/E is typically next year's P/E. Investors expect nearly $100B in revenue, but almost no earnings (1/366th). Because the denominator is expected to be SO small (against such large earnings), the forward P/E ratio will also be ridiculous and not very meaningful. No denying that many Amazon investors are bullish, but this is not the metric to prove that point. Other relevant drivers at play.
- tempestn 12y agoAgreed. One way to think of this is to compare it to a startup. You don't value a startup based on earnings, because generally earnings are negative. You instead look at revenue, revenue growth, market penetration, etc. Amazon could be thought of as a giant startup, reinvesting all revenue back into the company rather than taking profits.