This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Can Amazon Keep Defying Gravity?

NEW YORK ( TheStreet) -- When looking at tech and retail giant Amazon.com (AMZN), several things come to mind.

Not only is it without question one of the best companies of this era, but in Jeff Bezos it has one of the top three visionary CEOs in the entire market. But the stock is expensive by many standards.

With a price-to-earnings ratio of more than 300, investors are betting that the company can execute to perfection. After all, anything less can't support what its valuation presumes.

On one hand, there aren't many companies the size of Amazon that is producing the level of growth it has demonstrated.

But as well as it might be performing today in the face of increased competition from Apple (AAPL), Google (GOOG) and, on the retail side, Wal-Mart Stores (WMT), I think it is prudent for investors to wonder whether Amazon can defy gravity forever.

In other words, can it grow into its valuation -- metrics that include expectations imposed by the Street regardless of how outrageous they may be?

For example, in its most recent quarter, the company reported 1 cent per share on revenue of $12.83 billion, in line with analysts' expectations.

However, while revenue soared by almost 30%, earnings per share fell dramatically by 97% year over year. What's more, over the past five quarters, the company has logged an average of 38.5% revenue growth while net income has dropped by an average of 54% annually during that same span.

In spite of this trend, not only has the stock been up as much as 52% this year but, more impressively, it has surged more than 180% over the past three years. Most stocks would have gotten punished for bottom-line trends of this sort. As much as Wall Street seems to love to complain about valuation, in this case Amazon seems to get a free pass. Why? How long will revenue growth be enough absent meaningful EPS results?

Is Reality Kicking In?

That analysts have started to pare Amazon's third-quarter estimates should be a welcome sign that perhaps the company can't defy gravity forever. Current earnings per share estimates (on average) are now at 12 cents vs. the previously anticipated mark of 24 cents. What's more, over the past three months, the company's average estimate of $1.36 per share for the current fiscal year has now been trimmed to $1.21.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,071.22 -41.93 -0.24%
S&P 500 1,977.80 -5.05 -0.25%
NASDAQ 4,505.8520 -6.3420 -0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs