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  • bulbtrader bulbtrader Mar 24, 2014 2:11 PM Flag

    What's AMZN worth?

    I think that depends on what sort of pricing model you apply to the company. The conventional model that is widely used on established companies would bring AMZN down to about a tenth of these price levels, or it's earnings would need to be ten times greater than current consensus.
    But there is another pricing model, which Nem has applied to AMZN, and the market has been applying to it, as Nem has correctly pointed out. In this model, the price reflects potential growth and dominance on many fronts. Present earnings don't matter, because what cash flow there is goes to growing the business. In short, it has been treated it as a growth stock, with major, even exponential, growth to come.
    In the growth model, the price can be anything the market wants. As long as the majority buy into the valuation, it goes higher. Why not 500, or 1000, or 5000? There is no limit to it's PE or PEG. It is driven by the market's VISION.
    So what will the markets vision be by Friday? What about after the next earnings report. Will the vision change to a bearish one with the present loss of upward momo? Maybe the vision reverts to convention and the thing trades below 150, or below 50? Or is this just another pull back, and the bulls are right? A stock priced by market vision can make amazing, surprising swings, with an abnormally wide range of possibilities.
    We will find out rather soon.
    My best guess is that this will trade for conventional valuations.

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    • Well problem is that exact same scheme has been used time and time again to scam investors so many times in about 200 years of history of stock in US. It's been proven time and time again earning matters, especially the earning without all those accounting tricks, pure earning.

      Amazon is a great company but after 20 years you gotta do some reality check. Even immature Facebook is pushing for earning and has forward P/E of ~30-40. Without reality check on earning, AMZN's high price can evaporate in very short moment.

      • 1 Reply to ginjomushi
      • "Amazon is a great company but after 20 years you gotta do some reality check. Even immature Facebook is pushing for earning and has forward P/E of ~30-40."

        Except a lot of Amazon's business is early stage including most of the digital product, cloud, and newer geographies they've entered and in fact younger than FB which has been around for a decade already.

        FB is just in the ad business so they don't go through the kind of heavy investment cycles such as Amazon's. The forward PE for Amazon is probably modeled on the doubling then tripling of profit coming out of the past investment cycle. If this happens, forward PE will drop significantly but not necessarily the share price which could go up a lot even as the forward PE fell.

    • 10 USD

    • There will always be buyers lining up at the door if you sell a dollar for 99 cents! So no, you are not wrong. PS ratio is another scam propagated by the crooks it WS. In time, all stocks will be priced based on traditional metrics. There is no exception.

    • And then there is the model that Wall Street uses for their "pump and dump"" scheme which does not put pretty much any limits on the stock price but when it drops people lose their retirement savings.

    • " Why not 500, or 1000, or 5000? There is no limit to it's PE blah, blah, blah..."

      Oh, I think there is. You can see a certain range of valution that is pretty consistent. It relates to various specific inputs like sales, growth rate, cash flow, projections of margins. The short version is to say that Amazon in over a dozen years has never traded much above 2 times sales for those reasons. This constraint limits it to under 1000 or 5000 at current revenue.

      But this could also change depending on what other businesses they get into in the future.

      • 1 Reply to nemesis_editor_2007
      • Hi Nem,
        That's an interesting point about the PS ratio. I had a look at some data, and I see you are right that AMZN has always (at least back to 2008) traded around 2 x sales. Maybe the market's vision of the share value does have a limit of something like 2.5 or 3 x sales.
        Maybe it the recent valuation model applied to AMZN by the market should be referred to as a "sales growth based model", and the classic method used on COST and WMT should be called an "earnings growth based pricing model".

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