Amazon.com just keeps going up in price. You might think that people would be deterred by a stock with a P/E ratio of 177 but buyers keep piling on and the price goes up. How long can you keep buying Amazon.com before losing money? According to Cerbat Gem, JPMorgan Chase & Co. says Amazon.com is a buy.
Amazon.com, Inc. (NASDAQ:AMZN)‘s stock had its “buy” rating reiterated by JPMorgan Chase & Co. in a report issued on Friday. Several other equities research analysts have also issued reports on AMZN. Wedbush reissued an “outperform” rating and issued a $1,250.00 price objective (up previously from $900.00) on shares of Amazon.com in a research report on Monday, April 24th. Maxim Group increased their price objective on shares of Amazon.com from $1,000.00 to $1,075.00 and gave the stock a “buy” rating in a research report on Friday. Benchmark Co. reissued a “buy” rating and issued a $925.00 price objective on shares of Amazon.com in a research report on Friday. Nomura reissued a “buy” rating and issued a $975.00 price objective on shares of Amazon.com in a research report on Monday, April 24th.
Although Piper Jaffray considers the stock to be overweight there are only 5 analysts who have a hold rating for the stock and 45 with buy rating. How is this. How does Amazon.com make its money and how will that continue to happen?
Amazon.com and the Death of Bricks and Mortar Retailing
The internet offered an opportunity to display and sell merchandise without ever building a store. And Amazon.com took advantage. By offering very competitive prices and the convenience of shopping from your home computer or mobile device Amazon.com has billions of dollars of net cash flow from its ecommerce and web based server business and is seeing expansion year after year. NASDAQ reports AMZN cash flow.
2013: $5.5 Billion
2014: $6.8 Billion
2015: $11.9 Billion
2016: $16.4 BillionNet income for 2016 was $2.3 Billion.
These are impressive figures but how did we get to a P/E ratio of 177 for stock that cannot grow larger and larger forever? Where would the money come from? The Motley Fool looks at how Amazon.com makes most of its money.
Sales
North America Ecommerce: $79.7 Billion
International Ecommerce: 43.9 Billion
AWS (Amazon Web Services): $12.2 BillionOperating Income
North America Ecommerce: $2.3 Billion
International Ecommerce: -$1.2 Billion
AWS (Amazon Web Services): $3.1 Billion
The Motley Fool points out that the ecommerce business is run for minimal profit in order to constantly gain market share. As of today about 8% of North American retail sales are online which gives the company more room to grow. The same cost cutting goes on in the cloud computing and server business where growth rather than immediate profits are the goal.
Good Company but at What Price?
There is no question that Amazon.com is a powerhouse and likely to continue to grow. But will the stock price continue to rise? Right now with the P/E ratio in the stratosphere investors are betting on higher and higher stock prices. When that stops and investors look for return on investment when compared to Microsoft, Apple or Google there may be a big correction.
How Long Can You Keep Buying Amazon.com Before Losing Money? PPT
