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Nicholas Parks
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I hold a Real Estate Finance degree from Texas Christian University (Go Frogs!) and a law degree from George Washington University. I am a member of the Texas Bar, though I am not an active attorney. I am a minority owner of three car dealerships, representing Ford, Dodge, Chrysler, Jeep and... More
  • Should You Wait 200 Years For A Return On Amazon? 1 comment
    Jan 11, 2013 2:51 AM | about stocks: AMZN

    Amazon (NASDAQ:AMZN) is trading at 240 times the average of the last five years' earnings. Their best year was 2011, with earnings of $1.1 billion. At that, with a market cap of $120 billion, it's trading at over one hundred years' earnings. Fifteen years ago, analysts were arguing that Internet retailers deserved their high multiples because of their growth rates. Granted, Amazon has displayed amazing growth. Sales have nearly quadrupled in five years. However, EPS has gone from $1.12 to $1.37, and has averaged $1.71. At that rate, you can expect to earn your money back in a mere 155 years if you buy today. What happened to economies of scale increasing returns faster than revenues? When, if ever, can investors expect Amazon to focus more on profits than growth?

    I do not hold a position in Amazon (AMZN), though I'm considering a short position. But it would be my first short position ever, so it's not likely.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AMZN
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  • Nicholas Parks
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    Author’s reply » Update.


    Wow, that doesn't seem so long ago. Fortunately for AMZN investors, it's up 20% or so in the period since I wrote this. The average analyst thinks AMZN will end the year with profits of 87 cents per share, or about $400m. That values AMZN at 352 years of earnings. I know this is ridiculous and unfair of me to point out. For over ten years we've been hearing how AMZN's model is about user growth and that they can monetize those millions of users at a moment's notice. This is Bezos' master plan, huh? For arguments sake, how much would AMZN to make for the current valuation to be fair? First, we have to define "fair valuation." I believe the market is currently valued around 16 times earnings. AMZN has historically grown revenues significantly faster than the average Dow Jones stock and will probably continue to do so. Thus, it is probably worthy of a valuation two to three times the market average - something roughly in the 30 to 45 earnings range. To justify the current valuation of $141 billion, AMZN would have to net between $4.7 billion and $3.1 billion, respectively. While this is theoretically possible, it is important to note that AMZN combined earnings for the past five years is $3.3 billion. Notably, since 1996, AMZN has lost something between $15 billion and $16 billion. Thus, we basically have to assume that AMZN is capable of producing one year of profits equal to or in excess of the combination of all of its profitable years. That seems like a dramatic stretch of the imagination.
    8 Oct 2013, 01:10 AM Reply Like
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