Those looking to continue to profit from the meteoric rise of Seattle-based Amazon.com, Inc. (NASDAQ:AMZN), and buy shares at more than $1,000 apiece, argue that the technology-focused super-giant will change the world, and everyone who doesn’t buy into the amazing growth story that is Amazon will be sorely disappointed in the long run.
I have no doubt that Amazon will continue to change the world (it already has in some pretty big ways), and I also agree that Amazon is likely to continue to reinvest its operating profit into some pretty interesting and innovative projects, as it is one of a select few companies with the resources and talent to do so. That said, I just don’t believe that paying nearly 200 times earnings for that sort of potential is the right price.
Investors and analysts have tried to pinpoint the perfect price for Amazon, or at least the perfect valuation multiple, and seem to have missed the boat every time. Instead of Amazon’s valuation multiples decreasing over time, as is common with most mammoth companies which lead their respective industries, the company’s valuation multiples seem to increase over time as consumers and investors become increasingly excited about the long-term prospects of the world’s leading e-commerce company.
In assessing Amazon’s earnings history, as well as its ability to return value to shareholders over time, it remains clear to me that the company still does not believe it is a mature firm yet, but is still in an aggressive growth phase. I would argue, however, that it is, and that returning value to shareholders via increased margins, dividends, share buybacks, or a combination of all three, are in order over the coming years – otherwise, investors like myself will simply avoid (or potentially short) this company accordingly, should multiples continue unbound into the stratosphere.
Invest wisely, my friends.
