Don’t get me wrong. I like Amazon as a customer and I often buy things online from Amazon. It is indeed a great experience and reliable company to shop online. But as an investor, I must say it is stupid to buy AMZN. This is a stock with the most ridiculous valuation associated with it. Believe or not, for so many years since its inception, it is still bleeding and losing money. Just last week, it reported record quarterly sales of $19.3 Billion. Sounds great, isn’t! But it spent $19.4 Billion. So it still lost over $100 million. Per its own report, this situation will continue in the foreseeable future. So what’s its valuation? Let’s use the P/E ratio as a rough estimate. For the S&P 500 index, the average P/E ratio is about 19 times. For Amazon, it is astonishing over 500 times. What does this mean? It means you will have to wait for 500 years to get all your invested money back. Say another way, if AMZN wants to be in line with the S&P 500 P/E valuation, its stock price will have to decline over 90% to around $12 or so. I’m not predicting this is what will happen but for me I will definitely stay away from the stock and let those insane “investors” continue to play with it.
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