The One Stock That Got Away...?

Oct.30.13 | About: Amazon.com, Inc. (AMZN)

I love trading tech stocks because there are so many ways to view so many of these companies. You can easily find strong opinions both for and against stocks like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Netflix (NASDAQ:NFLX), Microsoft (NASDAQ:MSFT) and others. I’d argue though that no stock attracts the level of passion that Amazon (NASDAQ:AMZN) is able to generate. No matter how you look at it, the company has been different. It manages its business like no one else, has a unique leader who is buying newspapers, is admired and loved by many (consumers mostly) and feared by almost every retail business around the world. Today, I won’t try to cover all of those aspects. I’ll stick to the one most interesting to me; is the stock price beyond reach?

Every week I run into interesting analysis and this one was no different. I read the interesting perspective of a short AMZN holder but also a very interesting bullish view: “Amazon and the profitless business model fallacy“. Both have fairly opposite views about Amazon yet it’s difficult to argue with either. That’s very interesting.

I’m A Big Believer In Amazon’s Eventual Profits

In general, I do think Amazon has been 100% correct to reinvest so heavily into warehouses, and other businesses that will clearly generate profits in the future. Revenues have been steadily growing and it’s safe to assume that the vast majority of those sales are profitable ones.

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Yes, there are some segments that lose money and anyone who reads about how Bezos does business knows that they’re more than happy to lose money if it's the longer term company goals. I’ve already spent time looking into how companies such as eBay (NASDAQ:EBAY), Google, Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST) would be able to compete. My basic conclusion is that I don’t think they’ll be able to. Amazon seems to be several years ahead of the competition and that lead is only growing. How long will it take for Amazon to turn profitable? Some say it’ll never happen because there will always be new segments but I think Amazon will get there. When? It could take a while. But who can blame Amazon for taking a 10-20 year horizon? The company has been making brilliant moves like opening a warehouse inside Procter & Gamble (NYSE:PG), trying out grocery delivery, etc. Trading a company with a long-term vision is difficult in the short term for those such as myself who are trying to find a good buying point. In the end though, trying to find the low point can turn out to be a costly mistake if it means not buying for years.

My Big Problem With Amazon

So if I’m such a believer in Amazon … why not buy now? I fear the stock got away. You know that stock that seemed expensive so you wait a bit … then your belief keeps growing the price increases even faster?

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It just feels like every time Amazon releases earnings we see more revenues, no profits and the stock rises. And that keeps happening again and again and again. All the time. I’m getting very tired of this story, especially since it’s making it less and less interesting for me to jump in now. Could this only be the start for the company led by Jeff Bezos? Yes. But it certainly feels like there is significant downside here which I always try to avoid.

Disclosure: No position on Amazon.