Perhaps you've been reading all those articles saying how fantastic Amazon.com's (AMZN) latest quarter was. And by how much it beat expectations. Very few of those articles seem to mention that Amazon.com's earnings per share were actually down 36% from the same quarter the year before.
And even fewer mention what happened after that beautiful quarter. What happened was this:
Amazon.com Consensus Estimates For Q2 2012
Current Estimate: $0.02
7 Days Ago: $0.20
30 Days Ago: $0.20
60 Days Ago: $0.20
90 Days Ago: $0.21
Amazon.com Consensus Estimates For 2012
Current Estimate: $1.18
7 Days Ago: 1.24
30 Days Ago: 1.28
60 Days Ago: 1.30
90 Days Ago: 1.36
So earnings estimates for Amazon.com's next quarter were slashed by 90% in a matter of days. And even the yearly estimates suffered a 5% cut - and that's including the $0.21 "imaginary" beat of the first quarter, so really estimates for the rest of the year were cut a full $0.27, or close to 22%.
To put things into perspective, Green Mountain Coffee Roasters (GMCR), a stock that's being slaughtered 40% as I write this, cut its next quarter estimates by 30% and its yearly estimates by 10%. And yes, GMCR traded at a fraction of Amazon.com's valuation before being led to the slaughterhouse.
There is something deeply weird going on here, Amazon.com's estimates for 2012 have gone down from more than $5 to close to $1 in less than 2 years, this next quarter has been cut from over $1.00 to just $0.02 … this hardly seems what one would expect of a stock that trades at a huge premium to the market, especially a market where other companies get taken to the woodshed for much smaller failures.
The list of former darlings trading at much smaller valuations than Amazon that got cut in half or worse gets longer and longer. These companies had much lighter downward revisions than Amazon.com experienced already. The day Amazon.com goes through the same valuation grinder draws ever closer. Amazon.com's potential downside easily exceeds 50%.
Disclosure: I am short AMZN.