Is Amazon Falling Behind?

| About:, Inc. (AMZN)

Amazon (NASDAQ:AMZN) has an impressive valuation in the market. It currently has a P/E of 316.90, a forward P/E of 107.96, a PEG ratio of 9.86, and a P/S ratio of 2.17. The P/E ratio is quite troubling, with a valuation far higher than Apple's (NASDAQ:AAPL) 16.53 and Google's (NASDAQ:GOOG) 21.73. Meanwhile, Amazon's PEG ratio of 9.86 is out of line with the same competitors, with Apple at 0.70 and Google at 1.11. The fundamentals show that Amazon's competitors are growing faster than Amazon, and it doesn't look to be getting any easier for them.

Yesterday it was announced that Wal-Mart (NYSE:WMT) would no longer carry Amazon's tablet, the Kindle. This isn't the first major retailer to discontinue selling the Kindle. Target (NYSE:TGT) stopped carrying it back in May. Both retailers became fed up with Amazon's "showroom" style. Amazon products and apps (the Price Check app in particular) allows consumers to compare prices of items they see in the store, then buy the product directly through Amazon's website at a lower price more often than not. Wal-Mart and Target did not appreciate being a showroom for Amazon.

With the Kindle no longer being carried in either store, this will allow Google's Nexus 7 and Barnes & Noble's (NYSE:BKS) Nook a chance to prosper in both Wal-Mart and Target stores. This could adversely effect sales of the Kindle severely. With an already small market share in the tablet space, this could render Amazon obsolete in the space.

Meanwhile, Amazon seems to be backtracking from the innovative thinking it was once known for by testing bricks-and-mortar stores in Seattle, Wash. Amazon has an extremely complex network of programming within its warehouses to make the entire system automated. Robots run around the warehouse floor to fill orders completely run by computers, sometimes missing shelves and other robots by mere inches. This process made Amazon's profit margin soar. A move into physical stores would introduce greater overhead for Amazon and, consequently, lower profit margins.

Apple is expected to grow by 60% this year. Google is expected to grow by 18% this year. Meanwhile, Amazon is expected to shrink by 43.8% this year. That hardly justifies the steep valuation bestowed upon Amazon. Current estimates have Amazon growing by 34% over the next five years. That lags both Apple and Google. Those estimates don't even factor in the drop of the Kindle from Wal-Mart stores. Amazon claimed to have 22% market share in the tablet industry in August, but with the loss of another major retailer that is sure to shrink.

While Amazon's CEO has vowed that Amazon will take over the technological world, this news was a very obvious setback. With no smartphone, a tablet no longer being carried by two major retailers, and an extremely steep evaluation, Amazon is perfectly positioned for a pullback. It needs to start developing more cutting-edge technology before the CEO's words, or the stock, can be taken seriously. For now, competitors Google and Apple are better plays in the tablet space.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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