NEW YORK (F.A.S.T. Graphs) -- I've been analyzing common stocks for the better part of five decades, and I've never come across a stock that was more amazing and befuddling at the same time than Amazon (AMZN). After going public in May of 1997, the company did not generate a dime's worth of earnings until 2004.
Then, from 2004 to 2010, Amazon grew earnings at a staggering compound annual growth rate of 55%. Moreover, during that timeframe, Amazon's stock price closely correlated to and tracked their earnings growth. This all made sense, and was as it should have been. Great earnings generation produced a powerful advance of their stock price, and all was well with the world. The following earnings and price correlated charts presents a graphic depiction of Amazon's earnings and price correlated record from 2004 to 2010.
Perhaps it was during the glory days of profit growth where Amazon first created its loyal, if not overzealous, followers. However, since 2010, Amazon has found it difficult, if not impossible, to bring any profits down to the bottom line. But this has not stopped its stock price from continuing to advance to stratospheric levels based on earnings.
A quick glance at the earnings and price-correlated charts below show, in graphic form, what I discussed so far. To me, the most startling aspect of the following graphic is how Amazon's stock price has continued to advance like a rocket ship headed to the moon, in spite of collapsing earnings in 2011 and 2012. Could there be something that I am missing?
In order to see if I had missed anything, I took a look at Amazon based on a calculation of Funds From Operations, or FFO, which is a very close cousin to operating cash flows; what I discovered was Amazon amazing. Amazon's stock price tracked FFO almost perfectly as depicted below. However, this still befuddles me, because even though Amazon is clearly generating very strong cash flows, investors should consider that none of these cash flows are available to them. Here is a link to the formula utilized to calculate Amazon's FFO directly from their Statement of Cash Flows/ Statement of Changes.
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