If you bought Amazon.com (NASDAQ:AMZN) stock in February of 2002, you probably paid around $14.10 for it. Since then it has climbed to an all-time high of $246.71 on October 14th of 2011. That's a truly impressive 1,750% gain or about 180% per year up to that point, awesome growth stock by any measurement.
But what about today? The stock has fallen from that $246 stock price all the way back to its current price of $187.68. Have investors realized that Amazon.com's flight has leveled off? Can we expect the same results in the future from Amazon.com stock if we buy some today? Should we hold on to the gains we have, or is now a good time to sell, or even short the stock? Amazon.com is clearly a great company with a strong business model, but at what point do we say - wait a minute, is this stock overpriced? The recent stock trend for last 3 months indicates a 13.5% decline.
Consider some data when making up your mind. Even with its most recent pull back, Amazon.com's stock still has a 136 trailing P/E. In addition, earnings per share are spiraling downward, coming in at just 39 cents a share in Q4, down from 93 cents per share in Q4 of 2011. Earning are not expected to bounce back to that level until 2013 at the earliest, only reaching 75 cents by Q4 of 2012.
If you employ the PEG ratio, you are not likely to be interested in this stock. The EPS growth rate for Amazon.com averaged -46% over the last 3 quarters. In addition, Amazon.com was aggressively repurchasing stock during the quarter, presumably in an attempt to drive up valuation, and it is worth noting this was the first buy back in a couple of years. It coincides with falling share prices through the last quarter as well. Inventory was way up year over year, adding about 56%. Selection, as well as and an attempt to improve in-stock rates for customers, were the reasons given.
Amazon.com is still clearly a growth stock, with revenue continuing to rise even though sales growth is now decelerating, especially in North America. Operating income was down 19% on an annual global basis. Total operating expenses were up 44%.
Investors Business Daily gives Amazon.com.com a 24 composite rating, which is 10th in the retail-internet group out of 19 companies. 3 out of the 5 ratings categories are red, which implies to IBD investors that the stock is not a recommended buy. Compare Amazon.com's rating to the number 1 stock on that list, Liquidity Services Inc (NASDAQ:LQDT) and we see a stock with a P/E ratio of 34 and a 3-year EPS growth rate of 48%.
Looking at analyst recommendation on Zacks Investment Research, there are no analysts that have a sell recommendation, with 22 buys (20 of which are strong buys) and 10 hold recommendations. My own opinion is that many of these analysts are notoriously overly optimistic about most of the stocks they rate.
So the bottom line for me is that Amazon.com continues to be a great company with fantastic products, and a positive future. Does it warrant the stock price and P/E ratio it currently commands? Not in my opinion. You will want to consider your time horizon for investing, but in addition to the correction we recently saw connected to their most recent earnings release, another more fundamental correction may be in the works, at least in the near term.
Disclosure: I am short AMZN.