The stock does not appear expensive on a price-to-revenue basis, and is currently at 2.5 on a trailing 12-month basis. But a low margin business, which is what I believe Amazon will always be, should command lower price-to-sales multiples.
I continue to utilize Amazon as a consumer, and I remain impressed by what the company has been able to accomplish in terms of innovation. But I will not go near the stock. There is too big a disconnect between the price and the valuation. The current price reflects extremely high expectations, and history has shown us how those situations typically end.
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Don't get me wrong. Amazon is a real business, not a 2000-era tech bubble company with no prospects. But as sometimes happens in investing, the hype has taken over, and valuations have taken a backseat. Were Amazon ever to get to realistic valuations -- light-years from the current price, in my value-centric world -- I might reconsider. That would entail a dramatic drop from current levels, and the current crop of investors would need to capitulate. Stranger things have happened: I took a position in eBay (EBAY) in 2009, a move that would have previously been unthinkable, but at less than 10 times earnings, and with 20%-plus profit margins, it was too cheap to ignore. Amazon, though, has a long way to go before expectations line up with reality.
At the time of publication, the author had no position in any of the stocks mentioned.
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