Short Amazon: Its Businesses Face Monumental Challenges
by Andrew Kradjel
Introduction
Amazon's (AMZN) unwarranted stock valuation creates an excellent shorting opportunity. Amazon is priced at a P/E ratio of 2964: a multiple that is 180 times higher than that of the current market multiple of 15. Because Amazon is priced at a significant premium, investors are betting on dramatic earnings growth. However, it is highly unlikely that Amazon will expand earnings enough to justify its price because there are monumental challenges surrounding all of Amazon's businesses. Amazon's e-commerce business faces tax enforcement from states and competition from new online marketplaces. The Kindle, Kindle Fire, Amazon Instant Video, and Amazon Web Services are in highly competitive markets and have razor thin margins. Finally, Amazon will not be able to reduce its expenses to achieve the increase in earnings that many analysts expect because its high spending is not temporary; Amazon's expenses are structural and critical to support its businesses. Since Amazon's earnings will not increase enough to justify its valuation, Amazon's stock price will decline significantly until it returns to the point at which it has a fairly priced multiple. For that reason, Amazon is an excellent long term shorting opportunity. read more »
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