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Can Amazon's Smartphone Fire Up Its Stock?
- Amazon, Facebook, Apple, Google, Microsoft aren't staying within their comfort zones, and several projects in the past have proved that. Amazon Fire is an example of that.
- It's a good phone. Dynamic perspective could go on to be used by developers. And Firefly is a very useful shopping device, not just for users, but also Amazon itself.
- But a move into the smartphone market may concern investors, as smartphone companies are trading at pretty low valuations. Can the move justify a P/E of more than 100x?
Should Amazon Be Trading At Such A High Valuation?
- Is a forward P/E of 100x justified when U.S retailers are trading near 15x and high-end tech companies trade in a range of 15-35x?
- The case for a high valuation can be made for companies enjoying high operating margins. Amazon, on the other hand, has a profit margin of just 0.5%.
- There is a lot of competition from smaller retail start-ups, but Amazon's massive R&D budget for the last many years has given it a competitive moat that warranties premium valuation.
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