Amazon updated September 16, 2018

Our report on Amazon is updated and rated Speculative Weak Buy / Hold at $1970.

I was very tempted to not put a rating on it because it is “too hard”. Buffett has said that many investments should be put in the “too hard” basket and that he would just focus on companies where it is more apparent that the stock is under valued and where he feels he can predict future earnings.

I have not had any luck so far in rating Amazon. I first added it to the site on July 3, 2015 rating it a Sell at $438. Subsequent updates were also rated Sell including the most recent update rated Sell at $1196 on November 27, 2017.

Despite a poor record in rating this stock I wanted to read its reports and try to better understand the company and its valuation.

I track my performance in rating stocks is based strictly on the rating and the subsequent price increase or decrease. But it is also fair to say that each report contains a lot more than the rating. The reports look at  many factors. Hopefully most subscribers read the reports to get an understanding of why a given stock has a given rating.

In the case of Amazon, the last rating was Sell. But The last few sentences in the summary part of the report said:

“The stock may well continue to rise with sales and sharply increasing profits but we simply can’t justify the valuation with the available accounting numbers. Overall we would rate this as a Sell. It should be considered a speculative stock. Those with large gains should consider cashing out at least some of the gain (just as Jeff Bezos has consistently done). Nevertheless, the shares could certainly continue to rise and some may wish to hold it but should be aware that its reported earnings do not appear to justify the stock price.”

And the report noted that the GAAP earnings might be substantially under-stating the true economic earnings.

It remains very difficult to know how to rate Amazon. The trailing P/E is 156 which means the stock is “pricing in” substantial earnings gains (such as 40% per year for five years). But perhaps it will achieve that.

I have no plans to buy and if I did it would be a small amount with a view to perhaps adding if there were a substantial pull-back.

For years it was said that Amazon had very little earnings per share. Recently earnings per share have risen very rapidly. But the company’s focus remains on growth and so it’s not clear that earnings per share can be counted on to rise in the short term.

Again, perhaps I should just put this one into the “too hard” category.

 

 

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