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I am currently working as a financial analyst for an insurance compagny in Canada. I made an MBA in Canada and I have a CGA accounting charter as well as my FRM and I will soon get my CFA charter. I read on average one financial or economic book per month in my quest to understand everything... More
  • A visual perspective on the market value of Amazon (AMZN) 0 comments
    Oct 17, 2010 8:04 PM | about stocks: AMZN, BBY, DELL, COST
    I had some time to kill this weekend and I did it by analysing one of analysts' favorite stock, Amazon. I think Amazon is a great company with amazing prospects but I do think this company is overpriced as most top of the line growth companies tend to be.

    Amazon is growing very fast with a growth rate over 40%, on which most analysts justify the P/E ratio over 70 for the last 4 quarters. To be able to visualize what the market value of Amazon represents, I compared it to other companies. (See table below)

    To build this table, I tried to find compagnies as similar as possible to Amazon that together add up to the same market value as Amazon. In the end, I chose Best Buy for its electronics, Dell because they sell a lot over the internet and Costco for other products that Amazon sells. 
     
    When I look at the following comparison and find out that Amazon is worth as much as BBY, COST and DELL aggregated, I come to think that Amazon's revenue will have to increase a lot to justify this high market value. Its margin is 1.6 times higher than the average of the 3 other companies yet it only sells about 15% of what the 3 companies sell together. Amazon's growth is a lot higher but this difference in growth will need to continue for a long time. To keep growing enough to justify its market price, Amazon will need a bumpless future where it keeps innovating and where the current trend in internet sales stays very strong. Also, if a successful internet retailer was to appear, it would hurt those prospects.

    TickerMV(B)SalesEarningsGross
    margin
    Net
    margin
    4 quarters
     ending:
    Amazon
           73.73
    28,6651,08922.6%3.8%
    6/30/2010
           
    Best Buy
    16.77
    50,7031,41524.9%2.8%8/28/2010
    Costco
    27.97
    77,9461,30312.8%1.7%
    8/29/2010
    Dell
    28.18
    58,2041,55716.8%2.7%7/30/2010
    Total72.92186,8534,27518.17%2.38%
           
    Amazon /
    total
    101.1%15.3%25.5%124.5%159.7%


    Disclosure:
    Short Amazon, no position in Best Buy, Dell and Costco
    Themes: Retail Stocks: AMZN, BBY, DELL, COST
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