While reading TheStreet's senior technology correspondent Gary Krakow's piece regarding the possible new products -- yes, plural -- does sound rather interesting, you have to question the company's fundamentals a bit.
Reportedly, Amazon will produce a high-end and a low-end smartphone.
I'll let you read Krakow's article to get a better idea of the two, because that's not what I'm focusing on. Instead, I'm more concerned about the company's inability to produce a profit and am wondering how long investors are willing to wait for it to happen.Don't get me wrong: I like Amazon. The stock has been a strong momentum play and, despite its inflated price-to-earnings ratio, refuses to let pessimism get in the way. But at some point, you have to be hesitant of its ability to ever grow sizable profits. At least, profits that will allow the company to grow into its lofty valuation. But since the company's fiscal second quarter of 2012, it has lost money in two quarters and had a gain of one cent per share in another quarter. Essentially, three of the past five quarters were profitless, with estimates expecting another loss in the upcoming quarter. Revenue growth has been strong though, increasing from $24.5 billion in 2009 to $61.1 billion in 2012, nearly a 150% increase. On the other hand, operating expenses have ballooned from $23.4 billion in 2009 to $60.4 billion in 2012, a similar 158% jump. By now, we all know that Amazon is willing to lose money on its devices to gain market share and thus, drive sales of its other services, such as Amazon Prime, and products from its site. This strategy is fine, but to what extent? For 99% of other stocks, this action wouldn't be tolerated for more than a quarter or two. Amazon is clearly exempt. Simply put, it's not like the other 99% of stocks. Its share price is disconnected from the fundamentals, much like Tesla Motors (TSLA - Get Report) and Netflix (NFLX - Get Report).
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts