Is Amazon stock too high?

Shares trade at a soaring valuation. Does AMZN deserve its lofty status?

By Kim Peterson Oct 25, 2010 12:42PM
Arrow © Photodisc/SuperstockFortune puts Amazon's share price into perspective: Even if the stock had a major crash that suddenly cut its share price in half, it would still have a higher valuation than Google (GOOG), Apple (AAPL) or Research In Motion (RIMM).

Amazon (AMZN), trading Monday in the $170 range, is at a very lofty price-to-earnings ratio (currently 68.8), writes Andy Zaky. "Even more striking is that the company trades at 2.31 times its expected 5-year growth rate, which indicates that the stock has gotten way ahead of itself," he adds.

Does this valuation "far exceed any semblance of reality," as Zaky puts it? Let's check in with some analysts for help here.

Amazon has been hammered a little this year for spending more money on building out its infrastructure and warehouses. But after its earnings call last week, there seems to be a sense that that spending will return to normal levels, say analysts at Caris.

The analysts are upgrading their rating to "buy" from "hold" and upping the price target to $190. "Amazon's core business remains super strong and Kindle and Amazon Web Services (AWS) are only becoming more meaningful," the analysts write. Post continues after video:
The Kindle ecosystem, along with the Web-services side, could become more profitable than Amazon's core e-commerce offering, Caris writes.

"We believe that now (with a lower bar on margins and higher-capex regime likely coming to an end soon) is a good time to buy the stock," the analysts add. "We would suggest investors to take benefit of any near-term weakness."

Back to Zaky, who crunches all kinds of numbers and says that Apple's stock clearly outperforms Amazon's. There's a bubble here, he adds. "Amazon will lose 50% of its value over the coming years," he writes. "At $150-$160 a share, investors are flirting with financial suicide."

More from MSN Money

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
279
279 rated 2
443
443 rated 3
626
626 rated 4
667
667 rated 5
721
721 rated 6
630
630 rated 7
472
472 rated 8
292
292 rated 9
131
131 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
NKENIKE Inc9
ATVIACTIVISION BLIZZARD Inc10
BXTHE BLACKSTONE GROUP L.P10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
LUVSOUTHWEST AIRLINES CO.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.