Online Sales Rise, but E-Commerce Stocks Soar

With their appreciation over the last year, e-commerce shares have little room to disappoint investors on either the top or bottom line. In addition to Amazon's rise, eBay's (EBAY) shares are up 69% for the year, and Overstock.com's have risen 46%.

Similar gains by other e-commerce players such as GSI Commerce (GSIC) and Drugstore.com (DSCM) have left many of the leading companies with valuations north of 50 times next year's projected earnings. But that figure actually understates their current valuations, because the earnings estimates used to calculate them typically do not include the cost of stock options or other noncash charges that weigh heavily on the bottom lines of such companies.

"In general, expectations seem to have gotten up there pretty good in a number of these names," said one hedge fund manager, who asked not to be named. The manager's fund is short Amazon and Overstock. With Amazon in particular, "the disconnect between its current price and its [real] valuation seems steep," the manager said.

In contrast to its triple-digit share gains over the last year, Amazon projects that its sales will grow 23% to 34% on an annual basis in the fourth quarter. eBay has forecast that its revenue will be up about 40% from the holiday quarter last year, again a slower rate than its shares have appreciated.

On Tuesday, Amazon shares fell 91 cents, or 1.8% to $49.50, while eBay rose 32 cents, or 0.6%, to $57.59, and Overstock.com gained 93 cents, or 5.1%, to $19.35.

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