No, You Should Not Buy Amazon

At a market cap of $478 billion and revenue of $135 billion, you have to be nuts to get into Amazon now.

Using a simple calculation: say Amazon’s stable future PE is at 20 (pretty generous in retail), it requires Amazon to generate an annual profit of $24 billion (Walmart’s profit is $13.6 billion).

Put that into perspective, again assume a generous 5% profit margin, $24 billion income means the revenue for Amazon needs to be $480 billion. That is close to 400% of Amazon’s current revenue!!! Given Amazon’s elephant size, no realistic level of growth make that revenue a reality any time soon.

How could anybody expect above-market level returns from here by purchasing Amazon? AMZN’s price is at an irrationally exuberant level. The flood of media coverage praising Jeff Bezos as a genius also a really bad sign: every time that happens, Amazon’s shares are about to have a hiccup.

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