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  • kenji100 kenji100 Feb 14, 2013 2:14 PM Flag

    A good analysis on AMZN

    Below is part of the motleyfool article by Chad Henage, he does raise pretty good points but longs will ignore it since "stock goes up so fundamentals are good" thinking.

    "What's The Big Deal?
    Some investors might be able to ignore all of this and say just wait and see what Amazon can do in the future. I'm suggesting that this isn't the same fast growth stock it has been in the last few years. Think about it, Amazon is reporting 48% slower growth in merchandise, 58% slower growth in digital sales, and they have 72% more employees than just a year and a half ago.

    The big deal is, everyone points to Amazon as the future of retail efficiency and profits. Analysts were surprised by Amazon's gross margin in the current quarter. I'm not sure why, as their gross margin of 24.13% is still lower than Wal-Mart at 24.94%, and was lower than Amazon's full year margin of 24.75%. The real model of online efficiency is eBay and their nearly 70% gross margin.

    The Bottom Line
    Even if Amazon meets analysts targets, shares trade for almost 180 times 2013 projections and 73 times 2014 estimates. Considering the company missed estimates three of the last four quarters, these estimates should be questioned. At 4.39 times their growth rate this year, and even 1.78 times their growth rate next year, the stock carries a significant premium.

    Looking at the last year and a half, Amazon's sales are slowing, their fixed costs are growing, and investors have happily continued buying the shares. Amazon is a great business, but not a great investment at these prices. There is a difference between the two, and I'm afraid some investors are going to learn this lesson the hard way."

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