The easy call on Amazon (AMZN) and its Kindle tablet announcement Wednesday is to buy the rumor and sell the news. Consider some Amazon puts for that afternoon, because a retailer with a P/E of 98 is just not in a sustainable position.
There will be price action aplenty in this stock all week, so if you're into that sort of thing, here's a great playground for you to play in.
The best news for investors is that Amazon CEO Jeff Bezos does not have Steve Jobs' dramatic flair. Most of what will be on stage in New York Wednesday is already known.
If you like the way Apple ties its e-commerce services to the iPad, and controls the whole ecosystem, you're going to love the new Kindle. We're talking a 7-inch color Android tablet with a “skin” that locks users into Amazon's content and commerce services.
We're also talking about a retail price of $249, through Amazon. That's barely break-even, even with buying direct. It's half what the iPad costs, so there will be pressure there, and it blows companies like Samsung out of the water completely, because they don't have the back-end revenues to justify that price.
Think of a Research In Motion (RIMM) Playbook; now cut the price in half, and realize that the maker is primed to make a ton of money from it, not lose a ton. So RIMM is done, and Hewlett-Packard (HPQ) has no way back in, either.
For consumers who already like Amazon enough to buy into its $79/year “Prime” service (lower shipping costs for regular customers) the effective price of this thing comes down to $170. The fact that it's Android means it's not completely divorced from the ecosystem Google (GOOG) has built, but everything here spells money. We're talking about an Amazon app store embedded, the Kindle store, Amazon commerce services, and movies, movies, movies – more for all those Netflix (NFLX) bears to chew on.
I don't own Amazon stock, but our family uses Prime for the kids' school books and Christmas presents. So look for one of these under my tree. And look for Amazon's P/E to plunge early next year, even if its price stays the same.
Disclosure: I am long GOOG.