Can Amazon's stock hold its ground?
Posted
Nov 16 2007, 05:37 PM
by
Matt Koppenheffer
It's been one heck of a run for Amazon.com's stock. Over the past year it's up more than 80%, and since it bottomed out after the dot-com crash…well, let's just say that the investors that believed in the stock then are doing pretty well.
Browsing the portfolio of CAPS' current top player, SpecBear, I noticed that his most recent pick was an underperform call on Amazon -- suggesting that the stock will underperform the market over the next five years. The rest of the CAPS community hasn't had a much brighter view of the stock's future. The stock has a rating of just two stars out of a possible five.
CAPS All-Star WillSurfForFood noted "The US economy is slowing. Retail companies are going to suffer and at some point a P/E does matter." Fellow CAPS player Aleksandert added, "Sure the company is great, but at such a high P/E ratio, it's bound to go through a correction sometime in the near future." [readmore]
It's always a tough to pass up on the stock of a great company such as Amazon, but I find myself agreeing with the CAPS community. Even a great company like Amazon can be far from attractive when the stock is priced too high. At its current price (which makes Google's valuation look conservative), the company would have to maintain an almost unheard of growth rate to provide reasonable returns to its shareholders.
On that note, you also won't catch me shorting a stock like Amazon. High growth stocks that are priced for perfection have a history of defying gravity longer than anybody would expect.
(Full disclosure: I do not have a financial position in any of the companies mentioned.)
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