The Best Time to Short AMZN is NOW –1/8
The Best Time to Short AMZN is NOW –1/8
AMZN is a compelling short at current levels. AMZN has shot up over 100% in the last 6 months, most recently on its “blowout q1″ earnings report, a typically seasonally weak quarter in which AMZN reported EPS higher than their seasonally strong q4. Revenue growth has accelerated, and high hopes for new initiatives (digital distribution, web services, etc.) have fueled a speculative furor not seen in the name since the height of the boom. Analysts are excited by the prospect of amazon as a “media” company, rather than a online retailer of low margin products, trading at a over 100x earnings, with PEG multiples higher than GOOG and EBAY, both of which are more attractive, higher margin businesses.
For a variety of reasons, I believe these growth avenues are overblown, and that AMZN is more likely than not a leading online retailer with a strong online marketplace, low operating margins, and moderate but not spectacular growth going into the foreseeable future. I will argue that even if AMZN overnight became a leader in all areas they hope to grow into, the company would still be overvalued and likely to disappoint given current expectations. AMZN is overpriced on both an absolute basis, as well as relative to peers, and could see a upwards of a 30% drop based solely on a return to its prior lofty valuation levels, or upwards of a 50% drop if valuations were more in line with comps (which, arguably, are overvalued themselves), and potentially see further decreases as new ventures fail and their core retailing business receives continued pressure from offline and other online retailers, as well as the inevitable levy of an internet sales tax, which could wreak havoc on already tiny margins. Given the high PEG, as well as revenue and earnings growth going forward, I believe the risk of multiple expansion or multiples staying the same is relatively low, and that AMZN is an attractive low risk/high reward short.
To be Continued….
(Meanwhile, here is a link to see my past articles of some good picks:)
http://www.mystockwinners.com/category/weekly-pick/
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