Valued at just shy of $475 billion, Amazon.com (AMZN) is on an incredible run. It’s stock price has run up to $986 from $75 per share in 2007, mainly thanks to Wall Street willing to pay up for the shares.
The most valuable company in the world by market capitalization is Apple at $811 billion. The stock trades at 18 times earnings. Given that same multiple, Amazon would be worth $46 billion right now, and if the forward earnings estimates came into fruition, $129 billion – a far cry from the company’s current price tag.
Even with Facebook or Google type multiples (35x), the value would drop by at least half, and it earns a lot less than either of those companies. No investor should think that paying 70x forward earnings of a company that has historically produced sporadic profits is a good idea.
You could own Walmart, Costco, Best Buy, and Home Depot and still have $1 billion left over to fund the next great startup. Amazon still relies on products from others and as long as that happens, the switching costs are not that high for the majority of its shoppers. Amazon only ranks 12th on the list of largest US based retail companies, but it is the undisputed champ in online retail.
While Amazon remains the most disruptive force in the industry based on its size and willingness to spend money on new endeavors like the failed kindle phone, there are competitors looking to push back. Jet.com and Wish.com are looking to take market share with the former being under the mega corporate arm of Walmart.
Bottom Line: Amazon is an overpriced darling of Wall Street, but for how long?