Amazon.com, Inc. (NASDAQ:AMZN)

There's a variety of reasons, I'm giving AMZN a cautious green thumb.

1. After a couple of disappointing earnings announcements it has pulled back from bat sh*t crazy ratios to just irrational drunk ratios.
2. It is the best in its business.
3. But, the primary reason: of the 35 analysts covering Amazon, there is some of the widest spreads in earning estimates I have seen in a while and hopefully it can turn the ship around with a few beats this year.

For a value investor like myself, this stock is so highly overvalued that it hurts. Price to Book Value for example is above 11 times. This is unbearable and wildly unsustainable.

(2/10/12)

TMFMattya told me that Amazon will be 4 times bigger then Walmart in 10 years.

Kindle Fire is a big hit, I think Amazon as a brand is really starting to catch on.

Dominant force in online retail and the cloud, both huge growth areas

Great model, dominant player, always innovating.

its amazon.. The strategy/business model hits the consumer

The Company is thinking long term, something very few companies due this day and age. They may hae some temporary high overhead, but long term they are golden.

I don't get it. AMZN has a current P/E of 134 and EPS of $1.37. Meanwhile, AAPL has a P/E of 13.3 and EPS of $35. I buy a wide range of items from Amazon, but I cannot see how they could ever grow enough to justify a price of $185.

Kindle & Prime are two schemes to generate increased customer loyalty.

Amazon Prime is the future!

I think amazon is a great company making very quick strides to battle with the largest retailers out there. Sure their earnings is going to suffer as long as capital expenditures and hiring remain as high as they have been, but with the expectation that Prime, their new video streaming, and kindle fire content sales going up this will help stop the erosion of margins and possibly even reverse that trend. Then a few years from now when cap ex slows down, eps will be huge.

Like Netflix, Amazon has fallen out of media favour due to its long term capital investment approach. Next year or two will begin to show positive signs that that approach is paying off. As expansion and upgrades near completion, capital spend will scale back thus better reflecting the company’s strong market and cash positions.

AMZN is the Walmart of our generation and their growth for the next few years will not reflect in the stock price. However, their diversification and overall brand power will cause them to be a big leader in the next 10 years.

Eroding margins will cause some to lose confidence in the stock causing a plummet in stock price until valuations are more reasonable.

No discussion of AMZN can really avoid the issue of its P.E. ratio. It is unbelievably high and for most of my holdings I tend to take a value oriented approach. However, it is hard for me to find a business better poised for the future than Amazon so I am making an exception for AMZN specifically for the following reasons. First, from a buy what you know perspective, I use the company and find it to be superior to the alternatives. As a competitor to the local Wal-Mart/Best Buy its products are cheaper, it has a greater selection and with a Prime subscription it makes sense to buy even inexpensive items from Amazon. One of my coworkers uses it to buy diapers bi-weekly and I have purchased items as cheap as wood screws--although this calls into question whether or not Amazon will come out ahead on its free shipping vs. the cost of the prime membership. I assume that ratio will be adjusted by Amazon until it is profitable (much like a company might with an extended warranty plan). It seems possible that Amazon will supplant local retailers in the same way that cell phones have taken the place of landlines--one youthful generation at a time. There is the tax issue. Amazon users should and no doubt soon will have to pay taxes on their purchases. Until that time comes Amazon will continue to enjoy that additional advantage over bricks and mortar retailers.
I am ambivalent about the Kindle readers. My initial impulse was they should be giving the things away to sell the associated content, then Amazon lowered their price to do just that. I remain skeptical. Most of the content for the ereaders are available as an actual (used) book on Amazon much cheaper than the downloads. And I think an actual book is superior to an ereader, both in terms of the experience of reading and the cost of replacement in the event of damage or loss. On the other hand, even if people agree with me, they're still buying from Amazon.
I also feel that the jury is out on the Kindle fire. It is inferior to the Ipad. A poll of my friends and family who own fires meets with universal condemnation of the web browser. Hopefully this will be fixed with a download, but I'm not counting on it. It is also a loss leader, which means that the fact that almost everyone I know has a family member who has a Kindle fire, that in and of itself is no benefit to Amazon's profitability. However, even if the Kindle doesn't catch on longer term it's hard to imagine Amazon losing money on the Kindle once the associated purchases are made (e.g. covers, some media to test out the device, prime memberships). So the Kindle fire is either a little good for Amazon or it's great for Amazon and as an investor I like those options.
Which brings me to the video service. I have a hard time imagining that Netflix will be successful long term. Other than the physical hardware what is the barrier to entry? Obviously the contracts to stream the content, but it seems like two forces prevent this from being any real advantage for Netflix. As streaming becomes more common, first the contracts should become more standardized significantly reducing the cost of negotiating them and second the hardware will become cheaper and content providers may be more inclined to market directly to consumers. The latter is being done by virtually every television network already. Like RIMM being purchased for it's portfolio of patents I think the best Netflix could hope for is to one day be purchased for it's portfolio of content contracts (the value of which will decrease over time) and the good will associated with its brand. Amazon's video streaming has two components. Its free videos under the prime membership and its a la carte streaming. I have yet to come across a positive review of the free content. However, I am a fan of the a la carte content. Currently it is superior to itunes, insomuch as they are comparable in price and the streaming on Amazon is much faster than the downloading on itunes. I noticed on other pitches that people are having trouble streaming on their televisions. My television is connected to my computer (this costs about $30 to do) and it is hard for me to imagine that computers and televisions will remain separate devices over the next 5 or so years. In the interim, maybe Redbox is able to renegotiate their contracts to once again carry new releases in a timely fashion (bad for Netflix and Amazon streaming), but once computers and televisions are merged to any significant degree a la carte content, provided it is current and reasonably priced should beat subscription services like Netflix and frankly, like cable. Amazon's a la carte content is generally current (with the notable exception of HBO) and reasonably priced and, since they already have my credit card number, I can buy it with one click. However, even though I like a la carte over subscription models, really any problem that threatens Netflix also threatens Amazon's streaming service. It wouldn't break my heart if rumors of Amazon spinning off its streaming service turned out to be prophetic, especially if the spin off included Amazons music downloading service with it (one of Amazons only genuinely bad ideas). I would probably treat any stock that was distributed to me as the result of a spin off as a dividend and cash it in shortly.
So, I'm bullish on Amazon even though its PE ratio gives me a nose bleed. I have purchased a small amount at $173. I will purchase more if it drops meaningfully below that point and continue to buy if it continues to drop, absent some fundamental change in circumstance. If it does nothing but go up I'll probably hold into the low to mid $200s where I'll start to sell incrementally. Criticism of this pitch are welcomed. Happy investing.

Because in the world of books, when Barnes & Noble leaves, Amazon's pretty much going to be a monopoly.

This article outlines why I am bullish on Amazon stock: http://bit.ly/yl4ora

100SMA is holding up pretty well against big volume as support. I don't see it falling. On the flip side, the 50SMA is also holding up well as resistance. Nice little channel there! If the 50SMA breaks, look to retest 245ish.