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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
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  • High growth stock bubble
    What CMG, CROX, LVS, OPEN and SIRI have in common? They all are stories of fast growth.

    One year stock movements (Graph from google finance)
     

    Some of them have taken a pause during the recession but they are all on the move again. With all of them having very high valuation with PE of around 30 to more than 100. Most of them are forecasted to grow very fast in the next few years but I think the valuation is not taking into account the risk that the competition could harm them. 

    I think we can call this a bubble since these stocks have a very high correlation while they move up very fast and they have no reason to be so correlated. CMG, CROX, LVS, OPEN and SIRI are all from different sectors and they all move as if they were in the same sector and they were similar compagnies... In fact, I selected these stocks randomly from a list of popular stocks we often hear about in the financial news and blogs. These stocks could continue to move with momentum but when the music ends, it could end in tears for the investors owning this kind of stocks.


    Disclosure: Short LVS
    Tags: CMG, CROX, LVS, OPEN, SIRI
    Nov 20 2:22 PM | Link | Comment!
  • A visual perspective on the market value of Amazon (AMZN)
    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(NYSE: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
    Tags: AMZN, BBY, DELL, COST, Retail
    Oct 17 8:04 PM | Link | Comment!
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