Amazon's Bizarre Share Price

NEW YORK (TheStreet) -- I recently read that Amazon.com (AMZN) was the most successful Internet stock IPO in history.

This is based on its initial public offering price, initial market cap, and its current $236 share price and almost $107 billion market cap.

If the Olympics currently being held in London had a category called "Large-Cap Stock with Most Inflated Price" it's possible Amazon might win a medal. If you're an investor, this might not be a laughing matter.

Speaking of stocks that were Internet IPOs, Yahoo! (YHOO) came public around the same time as Amazon, but didn't fare so well. Today, Yahoo! has a share price of $15.98 and a market cap of less than $20 billion.

It's not exactly an "apples-to-apples" comparison, but Amazon as a company is valued at almost 12 times more than Yahoo! Using this Yahoo! Finance comparative chart you get the picture, and with this chart a picture paints a thousand words.

The stock market has voted with its wallet and claims Amazon.com deserves a P/E ratio (currently at 287) 16 times higher than Yahoo!'s pitiful PE of only 18.

Going forward a year, the market believes Amazon deserves a P/E of nearly 84, and Yahoo! only deserves a P/E ratio of between 13 and 14. Is that rational? I know that John Maynard Keynes said, "Markets can remain irrational longer than you can remain solvent."

I'm also aware of the fact that Amazon had an unusual second-quarter earnings report. Unless I misunderstood, the online retailer's earnings fell 96%, which supposedly reflected heavy investments in its business.

Yes, I was impressed that revenue grew by an impressive 29% to almost $13 billion, which represents a trailing 12-month revenue-per-share of a whopping $120. In comparison, in Yahoo!'s second quarter its trailing 12-month revenue was down 1% and revenue per share was a paltry $4.05.

Yahoo! quarterly earnings growth dropped 4.4%, and it has had difficulties finding and keeping a competent CEO. The jury is still out on its current choice, 37-year old Marissa A. Mayer.

Amazon's shares bounced almost 8% higher on Friday after posting a higher gross margin and solidly beating its own guidance for operating income.

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