It might have explosive growth, but the p/e ratio is just too much for me. I'm probably wrong, I should probably buy it and own it for the rest of my life, but still. Is anyone else disturbed by its present valuation? Because I can't get past it.

3 ...

Report Post

Posted by GenesChin

The Promise Land

Member since Feb 2012

37709 posts

Posted on 4/25/14 at 9:43 pm to Iowa Golfer

quote:
p/e ratio

But isn't the p/e artificially low due to the infrastructure reinvestment? If Amazon said today "We are happy with our business model and will just spend money on maintaining not growing" how much profit would they take in?

I mean just read this to see all the ridiculous new products they are coming out with that will add to future revenue growth.

AmazonPantry- Grocery delivery that may actually work

AmazonDash- Easily reorder items by scanning barcodes of items or use microphone to order items you can't scan

AmazonTV- looks to be a legit contender in instant streaming. Added HBO shows which is unreal since Netflix could never close that deal

AmazonPhone

Basically everything they do feeds back into their business model. Once you get sucked in you won't be able to leave. Huge reason why they still see growth in AmazonPrime despite raising cost

1 ...

Report Post

Posted by Korkstand

Member since Nov 2003

28745 posts

Posted on 4/26/14 at 12:01 am to Iowa Golfer

quote:
It might have explosive growth, but the p/e ratio is just too much for me.

What difference does a P/E make when Amazon pretty intentionally tries to keep E at $0?

quote:
Is anyone else disturbed by its present valuation? Because I can't get past it.

I don't think you're understanding how much investment is required to support a 20% growth rate in Amazon's world. They're not like Google or Facebook who can quickly deploy more servers and hire a few people and pull in some arbitrary increase in ad revenue. They're not even like Apple who can simply sell more expensive products, or just buy more capacity from their suppliers. For every doubling of revenue, Amazon actually needs to double their distribution floorspace (or invest in equipment/manpower capable of moving product through their facilities faster), and they have to do it years before it's needed.

Amazon is bringing the tech mindset about growth into Wal-Mart's world, and they are in uncharted territory. Amazon is on pace to match Wal-Mart's revenue in about 10 years... do you have any idea how amazing that is? And if the growth is still there, Amazon still won't be turning profits, and honestly by then I don't think anyone will care anymore. When (if?) the time comes for Amazon's growth to slow, then they will settle into Wal-Mart type earnings and ratios and all will seem right with the world. Amazon's gross profit margins are actually better than Wal-Mart's, and Amazon makes more per employee. Not to mention Amazon is into much more profitable ventures than retail. I also wouldn't be surprised to see Amazon get more into shipping, as well.

It takes a lot to build an empire. Seems to me that people crying for profits and dividends are asking them to fail.

2 ...

Report Post

Posted by FootballNostradamus

Member since Nov 2009

20509 posts

Posted on 4/26/14 at 7:49 pm to Iowa Golfer

quote:
It might have explosive growth, but the p/e ratio is just too much for me. I'm probably wrong, I should probably buy it and own it for the rest of my life, but still. Is anyone else disturbed by its present valuation? Because I can't get past it.

I really don't think you can do your best Benjamin Graham impression and evaluate Amazon in the traditional P/E Ratio metrics. As some have said, how do you value a company that is intentionally not turning a profit?

I have cooled on Amazon some in the recent months, but I'm not close to bailing on them. It's going to be a long, frustrating journey, but I think it will pay-off in the end. Like someone said, this is almost a 10 year minimum hold stock which is hard for some people to percieve and accept, but if you can I think it will be worth it.

I also think the ever-increasing connectivity of the global economy only helps Amazon. Having lived internationally I know everyone is begging for it to continue to grow in their countries. It is beginning to expand into Europe, and having lived in Australia it's still (in most cases) cheaper to buy things off Amazon and have them shipped here.

0 ...

Report Post

Money Talk - Replies to Post

Return To Board

Page 1

Return To Board