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  • Initiating Coverage on Amazon AMZN ($362.13)
  • Sell Recommendation
  • 2014-2015 Price Target: < $280

This note on Amazon (NASDAQ:AMZN) will be brief. I will write more on this in my report going out on SA next week on the department stores (industry), the economy and consumer spending.

As this market rally matures and indicators I look at signal a high point on risk/reward for the S&P, investors and traders should think about hedging their long positions. AMZN is as good a name to start with on the short side. In my opinion, AMZN is trading at a multiple to earnings looking out into the next decade. From my experience in retail, stocks usually have a disappointing quarter at least once every year (or two). If AMZN disappoints, you will see the shares retest the $250 mark from May. The upside may be $400 as the big research firms will undoubtedly raise their price targets if Christmas sales go well for AMZN. So, we have upside of 10% and downside of 30% and that is exactly the opposite of what I look for when making a recommendation.

Even though AMZN will earn less than $1 in EPS this year, and maybe $3 in 2014, the market cap ($165 bln) is now higher than the combined market caps of Gap (NYSE:GPS) ($17 bln), Macy's (NYSE:M) ($17 bln), Bed, Bath & Beyond (NASDAQ:BBBY) ($16 bln), Chipotle (NYSE:CMG) ($16 bln), AutoZone (NYSE:AZO) ($15 bln), Mattel (NASDAQ:MAT) ($15 bln), Ralph Lauren (NYSE:RL) ($15 bln), Best Buy (NYSE:BBY) ($14 bln), Harley Davidson (NYSE:HOG) ($14 bln), Coach (NYSE:COH) ($14 bln) & Kohl's (NYSE:KSS) ($11 bln). The P/E is > 120X speculative estimates for next year.

AMZN does not believe it should be valued as other companies are on earnings per share and other valuation metrics. I have trouble disregarding such metrics, especially with a company that is now mature (albeit still growing). AMZN may earn $1 in EPS in 2013 and $3 in 2014 (if you believe consensus estimates). Those same sheep who make up the consensus (that have estimates for $3 in 2014) are forecasting $6 for 2017 and $12 for 2020. AMZN needs to get to $24 in EPS in order to justify a $360 share price (15X) and I don't see that happening for at least another ten years (if at all). I have trouble forecasting what will happen in 2014, yet the consensus already has figured out that AMZN will double its EPS from $3 in 2014 and then to $6, $12 and $24? I didn't know forecasting the future was so easy.

Whoever wants to pay 15X estimates for $24 in possible EPS in 2025, feel free to do so. If I have $360 in my pocket, I prefer to buy one share of each of the 11 companies listed above. AMZN is not a monopoly and just as competitors of TSLA will not roll over and play dead, neither will the competitors to AMZN. AMZN competitors each have their own websites now, and just as Apple failed to knock out Samsung, AMZN will probably fail to knock out the likes of WMT, BBY, BBBY, MAT, COH, etc.

At best, AMZN is dead money at this point and will probably (at best) move sideways for the next ten years as past tech giants did after they matured. INTC and CSCO are both trading where they were ten years ago and the earnings have finally caught up to their market capitalizations from the bubble years. We will probably be saying the same thing about AMZN ten years from now.

It seems as though the big brokerage houses are playing a game. You can buy this wax candle for $20, because we can find someone to buy it from you for $25 in a few months. One firm just raised their target to $400 to reflect the calendar flipping to 2014.

I like Amazon. In fact I am waiting for a dozen cds to arrive in the mail this week. That being said, it seems to me the 44% move from $250 to $360 since May 1 is not justified. AMZN was probably over-valued before that $110 move. This is starting to remind me of what we saw before the Nasdaq crashed in 2000.

Source: Amazon: Lock In Gains On This Overvalued Name

Additional disclosure: AMZN is the primary ticker for this article