Amazon.com: Possibility of E-Commerce Sales Tax Makes It a Short

Amazon (AMZN) Shares were blindsided by an array of bad news released on Monday, beating its stock down nearly 10% at one point, before stabilizing. A downgrade and the prospect of an internet sales tax obviously spooked investors. Further downside momentum seems to be in the cards, as evidence of more damage to the overall economy appears to be rearing its ugly head on a daily basis.

The Consumer Electronics Show was underwhelming: Broadpoint AmTech scanned the floor of the CES on a fact finding mission and was woefully disappointed. Analyst Tim Boyd expressed concerns for the entire technology sector, as he described the show as a ghost town and stressed the exhibitors were very negative on their near term prospects. Boyd added, "while we realize that investors are aware it's bad out there, we are not sure they realize quite how bad." Barclays Capital's Tim Luke had a similar take, stating "we found few key themes to inspire investors". To add insult to injury, the Motley Fool's Rich Smith, came out with a piece lamenting AMZN's stock price as "fruitfully overvalued."

The Downgrade: Besides downgrading a slew of other technology issues, Broadpoint AmTech downgraded AMZN from a hold to a sell rating, and slashed $10 off its one year price target of $45, down to $35. I think Boyd's revised price target might be too generous as a $20 target price seems more reasonable, since stocks typically trade in extremes in both directions. Don't get me wrong, I would be more than happy to cover my short position somewhere in the mid thirties, as "greed" in the stock market quickly renders the violator a speedy trip to the poorhouse. The old saying "bulls and bears make money while pigs get slaughtered" should be etched in your memory banks forever, to prevent the potential debacle of allowing your gains, to turn into losses.

Sales tax conundrum: according to an AP story by Rachel Metz, AMZN's days of not collecting sales tax in states in which they do not have a physical presence seem to be numbered. State governments are short on revenues and are looking for ways to improve their ability to raise funds. If a law is passed to tax all internet commerce, AMZN's competitive advantage will diminish as consumers will no longer be able to purchase items from AMZN without paying sales tax. This move could help the brick and mortar retailers, by placing them on a more even playing field with their e-commerce rivals.

Bottom line: The current economic environment is certainly stacked against AMZN, and with a lofty PE ratio of 36, the stock really is no bargain. Add in the prospect of a law being passed requiring internet retailers to collect sales tax and what do you get? A stock headed down!

Disclosure: Short AMZN

Comments

[igggy:]

Amazon is a great company but the current economic environment and AMZN's high evaluation are obviously bad signs. There is no reason to write a lengthy article unless you have something new to say. And yes I am short Amazon too.

Jan 17 12:07 AM