The Higher Flies, the More Free Beer Flows

NEW YORK (TheStreet) -- Stop me if you have seen or heard this before ...

In my view, this is a case of "like the company, don't like the stock." Despite all of Amazon's innovation and all of the market share it has taken from the brick and mortar stores, its valuations are out of whack.
Insert old-school, textbook quantitative support for why "its valuations are out of whack" HERE.
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.

That's not from your grandfather, ink-stained fingerprint and all (because he was using his index digit to search for a stock ticker in the morning paper), that's TheStreet contributor Jonathan Heller. He joins a long line of luminaries to regurgitate the most tired and misguided bear case on Wall Street.

Yes. That's harsh. But it's half in good fun. And Jonathan knows that. I told him I was going to "rip him." And he knows I tend to love his work. But here's where Heller and the remaining AMZN bears go wrong.

They cite history as if it's guaranteed to repeat. That's a dangerous proposition. More dangerous than ignoring history because you fear you'll be doomed to repeat it. Plus Amazon is not typical. Heller said it himself in the closing paragraph of his article.

Does history provide a written assurance that all quantitatively overvalued stocks will play out narratives that won't end well? Or do outliers exist? Don't we live in a different world and play in a different stock market than we did in 1980, 1999-2000, 2008 and even 2010? We're not talking destiny here; we're talking the inconsistent and seemingly irrational workings of the real world.

For goodness sake, Netflix (NFLX) is overvalued. So are Pandora (P) and Tesla Motors (TSLA). Apple (AAPL) is undervalued. This is all true if, and only if, we use old and outdated methods of assigning valuation.

I'm not relying on the false notion that a rational market will render justice, making AAPL the high-PE stock it should be, if we're to justify AMZN, NFLX, TSLA and P's valuations.

Of course, you could take another view of the situation: AAPL is actually sanely valued. You can't use an overvalued and irrational market or set of stocks to determine what AAPL's value should be.

I disagree with that as well.

Trends and other statistical findings are fantastic. Until you find one of the many situations where they don't apply.

When you're dealing with a relatively small present-day sample -- the dozen or three dozen stocks or so we like to use as comparison cases -- you have to go on a case-by-case basis. Your ability to make a more qualitative analysis -- one that works in some quantitative data -- ultimately dictates your ability to determine which stocks will continue to fly high and which ones will ultimately fall.

Dig into the business, not a broad application of history.

If Amazon, as Heller indicates, is accomplishing things no other company has accomplished before and there's no end in sight, why shouldn't it have what we tend to call, when we're thinking old-school, a sky-high valuation. If you can find true holes in the business -- something beyond the standard it's just overvalued and that must correct argument -- you might have something. That's the approach I take when I'm bullish NFLX the stock, but bearish Netflix the company.

Ultimately, we're short-changing the metric of investor confidence when we have these discussions.

Jeff Bezos is alive. Steve Jobs is dead. Simple as that.

AAPL doesn't become a $700 stock again until Tim Cook wins over the confidence of the stock market. He likely will not do this, in any wholly meaningful fashion, until he kills, creates or reinvents a new category.

AMZN doesn't crash, barring some unforeseen hitch with the business, until Jeff Bezos dies, gets sick or finds a reason to step down from an unfinished job. Knock on wood on last sentence.

That's the reality.

I have yet to see a truly well-thought out bear case on AMZN. They all toss out the same quantitative pitch followed by age-old valuations tend to work themselves out line. Try using that one next time you're in a bar.

All I know is that, as AMZN continues to rise -- and you know it's headed to $400 -- the beer will flow. TheStreet's tech editor Chris Ciaccia and TheStreet contributor Robert Weinstein already owe me cold beer at a reasonable price. I'd be more than happy to add Jonathan Heller to the list.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a columnist for TheStreet. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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