Amazon Still Looks Overvalued

Though I myself didn't short shares of Amazon.com (AMZN) despite all of my recent negatively-slanted pieces, I am glad to report that shares are sitting lower than they were on every date that I published anything about them.

AMZN's recent decline can be attributed to the general market pullback, but looking forward, shares may continue to underperform. Below is a six month chart of AMZN [click to enlarge]:

Shares are still trading at $75 though the company is only expected to earn roughly $2/share next year. Even a 50% upward surprise (meaning yearly earnings of $3/share) still wouldn't make shares look cheap.

Looking at the chart, shares seemed to touch resistance (both 50 day moving average and some previous lows) Wednesday, so further movement downward could be looked at as a weak technical sign. Shares have also clearly broken the upward trend that began in March. Looking downward, there had previously been consolidation between $60 and $65, which could be a reasonable mid-term price if the wider market continues to correct. There's still a glaring gap between $50 and $57, but I wouldn't expect that to be filled anytime soon.

The bottom line, once again, is that Amazon is a great company but AMZN shares are still overvalued. I'm personally not initiating any short position at this point, but I'd rather short than buy long AMZN shares tomorrow.

Comments

[Jason Tillberg:]

Hi Steven,

You have a fine understanding of investment value theory. I could not agree with you more.

I'm short AMZN and own June 75 puts along with Oct 80 Puts I purchased the very day AMZN reached 86. Lucky you could say with that trade.

Here's my analysis www.valueinvestingclas...
Jason

May 15 01:59 PM

[David Tsao:]

It will be interesting to see what Apple comes out at their big confab. Rumors aside, if they are developing some new product they'll have it under a tight lid so as to not cannibalize their current iphone / macbook sales. If there is anything material, it will suck away some of the hype from the recent Kindle DX. Margins not there yet.

May 15 07:55 PM

[Alfredo Mar...:]

I've come to the same conclusion about Amazon. I think it's a great company that's stock is vastly overpriced.

I believe Amazon will become a dominant retail powerhouse like Wal Mart, but with a P/E ratio of around 47, I just can't justify buying it anywhere near the current price.

May 15 08:38 PM

[chleoku:]

I agree with you guys in short run amazon is overpriced, but looks like it's a pretty strong stock to hold (enter when pricing is bottom) to prepare for the ecommerce rebound:

www.wealthalchemist.co.../

May 16 03:52 AM

[Andrew Oresto:]

Overpriced, is it?? I don't know... I've been wanted to pull the trigger and buy some shares for the past few months, but am still sitting on the sideline due to the 50x earnings. But this stock has some real great potential--the kindle means little compared to owning the markets that stream all of the books and that a pittance compared to this companies potential. This is "the" e-tailer and as smart phones and all sorts of mobility starts coming on the the net--there is going to be huge rev increases. I have this funny feeling that the internet is going to explode again like a pressure cooker in the coming years--this slowing/non growth is a blip in radar. The dawning of mobile computing and a wide range of device connectivity is here, and once it revs up in full force the 50x earnings won't matter too much I'm thinking. I'm buying.

May 17 11:26 PM