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Amazon: High Valuation Hints at Further Downside

Tim Boyd of American Technology Research said:

"Neutral means Neutral at current prices with a 12-month outlook. Amazon shares should trade lower in the near term, perhaps as low as $30 (15 times our new 2009 pro forma EPS estimate of $1.97), perhaps even lower (beta contingent). Investors who agree with that view should by all means short the stock here and now for short-term gains.

Our new $40 price target is a 12-month target, i.e., we assume that 12 months from now, the market will have sufficient visibility into the state of the economy and the consumer to assign Amazon shares a 20 times multiple. Amazon is a unique and extremely well-managed franchise that is likely to emerge from the current economic malaise much stronger than when it went in. It is the kind of stock that investors will want to own for the long term at the right price.

We would start nibbling and/or covering shorts at $30. With Apple (AAPL), Research in Motion (RIMM) and Google (GOOG) already trading at an average calendar 2009 price/earnings multiple of about 15 times, there is no reason Amazon shouldn't trade there, too, after Wednesday's report."

-- Tim Boyd

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