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Amazon: The Mother Of All Bubbles

By Michael HarrisStock MarketsApr 27, 2018 05:02AM ET
www.investing.com/analysis/amzn-the-mother-of-all-bubbles-200310060
Amazon: The Mother Of All Bubbles
By Michael Harris   |  Apr 27, 2018 05:02AM ET
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The stock of Amazon.com Inc. (NASDAQ:AMZN) is sharply higher in overnight trading. The company reported doubling of profits in first quarter of this year to $1.6bn and is expected to open with a sizeable gap between 5% and 10%.

In our opinion AMZN is highly overvalued with a P/E ratio (TTM) of about 246 based on data before the earnings announcement. Note that the bulk of the profits for the quarter, or about $1.4bn, did not come from retail sales but from an increase in sales of Amazon Web Services (AWS) that provides hosting to companies like Neflix but also to the CIA. The increase in AWS sales was 49% for the first quarter.

Below is a daily chart of AMZN since inception with the growth of $1 and a drawdown profile:

AMZN Daily Chart since IPO
AMZN Daily Chart since IPO

The increadible growth of about 77,500% has come at extreme tail risk as it may be seen from the drawdown chart. Since IPO, the maximum drawdown is about 90% and the average is about 35%. We wrote in September 7, 2016, that "Only Speculators Would Have Held Amazon Stock Since IPO" and we still believe that. We have also shown that this stock has a drawdown profile similar to that of Bitcoin.

The problem with extraordinary quarterly performance is that it is unlikely to repeat. Therefore, we believe that a top in this stock will be formed soon. This stock is a remnant of the dot com bubble, one could call it a statistical survivor. Fundamentally it has no advantages over other companies that compete in retail sales and hosting services but it seems that it has done it a lot better up to now. However, this pattern is not sustainable in our opinion and at some point there will be reversion to the mean.

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Amazon: The Mother Of All Bubbles
 
Amazon: The Mother Of All Bubbles

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Max Rashid
Max Rashid Apr 27, 2018 11:41AM ET
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Amazon will never be profitable enough to pay dividends.  I will not buy it even for 50 dollar.
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Disclaimer: This blog (the Blog) is created and authored by Michael Harris (the Author) and is published and provided for informational purposes only. The information posted in the Blog constitutes the Author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You understand that the Author is not a financial adviser, that the Author is not advising, and will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in the Blog may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. From time to time, the Author may hold positions or other interests in securities mentioned in the Blog and may trade for his own account(s) based on the information presented. The Author may also take positions inconsistent with the views expressed in its posts on the Blog.
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