Amazon's Glass Is Half-Full -- and Rising

Valuation comparisons between Amazon.com and Wal-Mart are meaningless and should be ignored, Cramer argues. What makes money isn't and shouldn't.
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Let's get out the back of the envelope. At the pace of

Amazon's

(AMZN) - Get Report

fourth quarter, the company could do a billion in sales. Amazon's market capitalization is now $22 billion. Are we paying too much for that revenue?

As long as I have been in the business, the benchmark for retailing was

Wal-Mart

(WMT) - Get Report

. When Wal-Mart hit a billion in revenue in 1980, its market cap was $2.3 billion. By that benchmark, Amazon is hideously overvalued -- 10 times so.

Where was Wal-Mart when it had Amazon's market cap? That's even more telling: In 1987, the greatest retailing story ever reached $22 billion in market cap. At that point, it had net income of $628 million! Amazon should lose $114 million.

The only logical conclusion is that the market is way out of whack in how it values Amazon. Wrong!

The only logical conclusion is that the comparison is meaningless and irrelevant. It would have been wrong for a massive amount of money. And it will remain wrong.

A "skeptic" says that Amazon shouldn't be here based on the "rigorous" back-of-the-envelope comparison with Wal-Mart. But an opportunist says, Give me a break. Wal-Mart is a company with $183 billion in market cap that is burdened by pilferage, sales tax and inventory concerns. It has massive real-estate costs with all of the attendant costs: electric, insurance, health care, blah, blah, blah. Amazon is a company with a $22 billion market cap with none of those burdens.

The opportunist says all of these comparisons are simply odious and misleading. Amazon is a retailer in name only; in fact, it is a distribution company with the potential for gross margins that would put Wal-Mart to shame if it executes. And right now, it is executing. That makes it worth taking the gamble.

You only need one $22 billion market cap stock that goes to $183 billion to become very, very rich -- which, last I looked, was still the goal. Maybe you are paying too much for that ticket right now, but maybe not. We don't know which Net company will be a winner, but we do know that there will be winners. Right now, Amazon is looking like a winner.

Or, to borrow an analogy from another tech business that many people were too skeptical about, had you put equal amounts of money in Software Pub, VisiCalc, Ashton-Tate and Microsoft in 1986, how much money would you have?

Answer: a ton.

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication, his fund was long Wal-Mart, Amazon.com and Microsoft, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com.