Amazon.com, Inc (NASDAQ:AMZN) is without question one of the best and most successful companies in the world. It is known for being the largest online marketplace in the world and is constantly innovating. But with profit margins that average 2% or less and no dividends to offer shareholders, the company is strictly a growth investment.
The company is growing revenues, from $74 billion in 2013 up to over $135 billion for Amazon’s latest fiscal year, representing an increase of over 82%. However, profits are minimal and not showing nearly as much growth (and in one year even showed a loss).
From a valuation standpoint, the company is trading at a price to earnings multiple of nearly 200, and 23 times its book value. The stock is extremely expensive given the lack of profits and high multiples it is trading at, but don’t tell that to investors who have seen the stock increase over 38% year-to-date.
Hype does wonders to stocks, and I think this case is no exception. Amazon is a tech stock and higher multiples are more acceptable in the high-growth industry, but consider that Alphabet trades at only 32 times earnings and Apple trades at only 17 (and offers a dividend).
Bubbles are not new to stocks, and I think Amazon might be the biggest one right now. It may not pop anytime soon, and you could still make a decent return on Amazon in the short term, but for the price tag I think there are much better stocks to invest in. At Amazon’s current price it is hard to see how much more upside the stock can have, and many analysts have agreed that the U.S. markets are overpriced. One day Amazon will inevitably slow down, and many investors could be caught not wearing their seatbelts.
