Home > News & Commentary > Amazon and the Incredible Rising PE (AMZN, FDX, UPS, M, TGT, BGP, AAPL, GOOG, PG)

Amazon and the Incredible Rising PE (AMZN, FDX, UPS, M, TGT, BGP, AAPL, GOOG, PG)

Amazon’s (AMZN) stock reached a new, all-time high of 135.91 today after having another successful day, finishing up over 3% on a choppy day of trading.  What is going on, and why does it deserve a Price-To-Earnings Multiple of close to 80?

Certainly, we can look at the obvious trends that have been taking place over the past decade or so.  The slow (or not so slow) decline of brick-and-mortar is well documented, as is the amazing, almost parabolic, rise of online e-commerce.  The large overhead and real estate costs of running a physical store put shops like Macy’s (M), Target (TGT) and Borders (BGP) at a disadvantage when it comes to pricing.  Add to that the advantage that customers in most states do not pay sales tax for online purchases (although this may change), and the advantages of Internet shopping are huge.

But, based on this years earning expectations of 1.88, AMZN is trading at a multiple of 72 as of todays close. Granted, this is lower than was found during the bubble years but they have real revenue now and far lower growth prospects.  Analysts expect the company to grow by 25% per year, which in the next 5 years would give AMZN a market cap of about $180bn, equivalent to Apple (AAPL), Google (GOOG), or Proctor & Gamble (PG) today.

I could not think more highly of Amazon the company.  They have proven resiliant, resourceful and innovative in their highly competitive market.  They refuse to rest on their successes, as shown by their unveiling of the Kindle; a product that is making people take E-Readers seriously for the first time.  And I believe that the company will show continued success.  AMZN the stock, however, has gone too far.  There are less pricey ways to play the shift to E-Commerce (Fedex (FDX) and UPS (UPS) spring to mind), but frankly, this whole e-shopping trade is getting too crowded for my blood.

-AH

Disclosure: Long TGT, no positions in any other stock mentioned.

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