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Will Amazon Drop 30% Like Apple?

Let's take a look at some very troubling numbers that investors should consider.

Amazon's operating and profit margins are not trending in the typical direction a high-flying stock usually occupies. Keep in mind that Amazon is not experiencing a one-off event with low margins. The trend started low and has moved even lower. Even after a strong holiday sales quarter, Amazon is now losing money on a trailing 12-month basis.

AMZN Operating Margin TTM Chart AMZN Operating Margin TTM data by YCharts

The perma-bulls are quick to point out Amazon is a future growth story. I'm not sure the growth story holds water. The growth rate is slowing, too.

AMZN Revenue Quarterly YoY Growth Chart AMZN Revenue Quarterly YoY Growth data by YCharts

What about future profitability? This is where an investor leaves reality and enters a Twilight Zone state of mind to wrap your head around the numbers.

The future expected profitability of Amazon is so high that even the slightest speed bump is likely to upset the Apple cart and cause a mass exit of investor confidence. Take a look at a chart that may paint a discouraging picture as far as your portfolio is concerned.

AMZN Forward PE Chart AMZN Forward PE data by YCharts

I don't normally include this many charts, but Amazon is really the exception to the investing rule. Yes, I know The Street's Rocco Pendola says traditional valuations somehow don't apply to Amazon because Jeff Bezos is a super-human CEO.

Bezos is obviously the exception to the rule and has navigated many obstacles including the dot-com bubble bursting, but not because he turned Amazon into an earnings powerhouse. Bezos' genius has been his ability to convince investors to forego earnings quarter after quarter.

Unfortunately, as Amazon grows, the scale of operation requires greater market share from other retailers that may not sell at a competitive disadvantage. Wal-Mart (WMT), Target (TGT) and eBay (EBAY) can each compete on a level playing field with Amazon.

Actually, eBay may be increasing its competitive landscape. eBay, unlike Amazon, doesn't directly own any warehouse space. eBay still is able to offer products with one- or two-day cheap delivery as a result of thousands of spare bedrooms, retail space and store overstock space holding inventory. Amazon's build-out of warehouse space, and the added payroll that goes with it, may permanently move Amazon into the breaking-even (or worse) column.
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