Price/Sales is 4.01, lower than GOOG, FB or MSFT. They are going for growth, not profit. No valuation metric is perfect, but P/E is particularly useless for this company.
But here’s the key - to do that, a stock would have to lose TWO THIRDS of it’s value.
So a really high p/e signals really high growth expectations, and when a company isn’t growing at that expectation, the law of gravity again takes control and it will fall back to earth.
Ignore it at your own peril.
But that is no longer the MO of many public companies now.
The goal appears to just eternally grow the stock price and allow share holders to cash out in the form of appreciated shares which get a preferable capital gains tax treatment.
Occasional earnings are just there to prove to the market that you could make money if you wanted to. Amazon has never paid dividends and probably never will unless their shareholders are able to convince them otherwise.
To take it even further, there are additional tax advantages to capital appreciation for the wealthy that hold Amazon stock. They can even choose not to sell appreciated stock but instead get low interest loans using their stock as collateral.
Buy stock - let it appreciate - increase your line of credit - live off the borrowed money that has a lower interest rate than the stock price growth rate - continue until death - let estate sell the stock and take a one time tax hit.
[1] Either through dividends or through buybacks. The second option has some advantages relative to dividends and results in capital gains for the investors that choose to sell.
Second, a company’s market capitalization can only grow in one of two ways: increase in the P/E ratio, or increase in earnings. Of the two, the latter is more sustainable, and less susceptible to market downturns.
Dividends are just the percentage of earnings a company pays out to its shareholders for various reasons (I’ll skip the myriad of reasons for brevity).
The best measure of sustainable value creation is ROIC (Return On Invested Capital). Most people don’t use it because it’s not a readily available statistic and it’s not easy to calculate. But for the long term, I don’t know of anything better. Still, p/e is important.
No, that's not correct. If you are being paid a dividend, whether it be qualified or not, that money is double taxed. Once at the corporate earnings rate and then again to you personally at capital gains rate.
As a shareholder, whether that tax all comes out of your pocket or not, doesn't matter. Your increase in value is effectively taxed at 60-70%.
But that is not the case if the company you invest in, rather than retaining earnings to pay dividends, reinvests into growth or other capital expenditures or keeps large sums of untaxed money in overseas accounts. Thus continually pushing the stock upwards. And allowing investors to make their own choices about cashing out. Be it by selling shares of getting loans using the stock as collateral.
Why in the world do you think Apple has $250B in cash, a full quarter of their total market cap, mostly stashed away in tax free zones?
It is for the simple reason that people can invest and get that money reinvested for them all without ever having to sell or take a distribution and then get taxed before using it or reinvesting it yourself.
My statement is correct.
But you are iggiring the bigger picture that dividends money had to be taxed on the corporate side before it was given to you.
Capital gains that are propped up by huge cash stores in overseas tax free accounts are not.
I would argue that portion of their retail revenue is much closer to tech than retail, considering the margins are comparable to tech companies.
FB Growth 28% YoY, P/E 26.51, Mkt Cap 573B
GOOG Growth 19% YoY, P/E 25.90, Mkt Cap 788B
MSFT Growth 12%, P/E 27.69, Mkt Cap 1.07T
But for those companies it's also pretty impressive, market beating growth.
Tech stocks usually have higher P/E's than retailers, but for comparison here are the P/E Ratios of the world's largest retailers:
WMT 38.8
COST 34.33
KG 9.24
WBA 10.75
HD 21.73
TGT 15.39Then please lay out your understanding of what justifies AMZN's price in your eyes as you've yet to quote a single figure.
The only reason why WMT's P/E is so high (and their Market Cap doubled in since 2016) is because of their success in their e-commerce business which saw 37% growth YoY.
You've been saying AMZN is a retail business whose financials can't be compared to Tech stocks which is clearly untrue, AMZN's retail business is less than 1/2 the size of Walmart yet they're worth 3x more who would've been worth even more if they didn't give out dividends which AMZN can't dream of doing at their current valuation.
As for producing the numbers on the YoY for the retail companies you listed - I hope somebody else does that. I'm busy.
This is a good idea. Stop the stock game and just pay a set base salary = to comp + stock.
But we can’t do that because that would take all the fun out of seeing part of your potential income fluctuate with the whims and buffoonery of Wall Street.
It does help with M&A, raising capital, employee stock options + bonuses.
It's rare, but sometimes you'll hear company Investors saying that their stock price is too high, like Zoom's CEO [1].
[1] https://www.bloomberg.com/news/articles/2019-04-18/zoom-vide...