Serious question: Considering that it nearly doubled over the past year, is it already too late to buy Amazon stock? Or not? What's the upside?
You can ask anyone, any individual, of course and they'll have a particular answer which will differ. But I wouldn't be quick to trust a particular answer over the answer of the market (which IS the stock price), unless the particular answer is from a particular person, like a buffett, a domain expert or an alien from the future or someone with insider knowledge.
At least, that's the theory haha. I know it's a shitty answer.
an individual with a billion shares has more of an impact on a share price than an individual with one share.
I think it goes to $2000/share soon (as in a few years). disclosure: long amazon
The fact is it is rarely too late to invest in a company if you do it prudently. The difference is Amazon being your portfolio - and being part of your portfolio.
Given its obscene metrics you shouldn't allocate a large percentage of your wealth in it. A good proxy would be index funds. You should really only have more of your wealth in Amazon than what would be allocated to it from something like an sp500 index fund if:
1. you are wealthy enough to take the risk
2. you are smarter than everyone else and know AMZN is a great stock
By the way, chances are you aren't smarter.
Even still Amazon has a crazy high valuation, just not insanely high. Not sure I’d bet against it though.
Your comment about reflecting the infrastructure in valuation would lean toward looking at Price/Book Value instead. Amazon would look quite expensive on this measure as well.
P/E = stock price / (earnings / # of shares oustanding)
And it actually does matter because a company can steadily grow EPS while not growing revenue meaning that something might be amiss, but it can easily be overlooked because EPS has been growing. Also, there are plenty of reasons not to want buybacks. Many times companies will buy their stock when it's at highs, thus destroying value for shareholders.
Example: you make a profit of $100. You use those $100 to buy the Brooklyn Bridge. Your profit is still $100. It's only your cash flow that's now at $0.
That's crazy high.
Even if AMZN could 10x their earnings overnight by stopping expansion or something, they'd still have a 30x - meaning way more than 30 years of future profits at this level.
Either that, or they'd still have to grow that much.
Stocks are in a clear bubble. Snap, AMZN, Tesla, and also BTC are stupid, and the world economy needs a correction just to remind people to do their homework.
And it's pretty rational to ask if there is much upside to Amazon - because there's a whole lot of downside risk now as well if financial markets decide that 300 is a 'dumb' multiple.
as a thought experiment, Lets suppose that everyone on earth is forced to invest 10 percent of their salary in their 401k and it has to be in equities. And they cant take it out until they are 90 years old. Stock prices would probably inflate 5-10 times current prices. Amazon would be 10 times "overvalued" in relation to profits. Would you not buy becauss of this? Of course not, Because people would continually invest in stocks and much fewer people are cashing out.
The market is clearly anticipating Amazon is going to get a lot larger yet. They're still growing at ~25% annually (minus Wholefoods), despite approaching $200 billion in sales. There's also no question that it's extremely richly valued here no matter what their growth is over the next five or so years.
Cloud services are also a competitive business and margins I think will erode eventually.
On a modest decline from the present rate of growth, they'll hit $300+ billion in sales in just three years. AWS should easily be at a $9b operating income annualized run-rate, at that point.
The common proclaim for years now, has been that there would be no margins in cloud services. AWS has always proven that wrong, all the way back. There's no reason to believe after 11 years, the margins are suddenly going to disappear. If the fierce AWS / Azure / GC competition the last five years didn't squeeze those margins out yet, then what would? It's more likely that the AWS margins will hold as they add more specialized services that are difficult for basic / smaller competitors to replicate (unlike eg standard compute or database services).
It might be wrong. But it has more money to have remain wrong, than you have to prove it wrong.