Thursday, April 26, 2012

Amazon: Growth in the Business, But Where Are the Profits?

After today's close of trading, Amazon reported that its revenues and earnings per share in the latest three-month period exceeded the estimates of Wall Street analysts.  In after-market trading, the stock price jumped 15%.

Amazon continues to grow and invest in its business, as it has throughout its history.  But the company's operating profit margin was only 1.8%, the lowest since 2001.  Earnings per share this year are only half the level of two years ago, and estimated earnings per share for 2012 have steadily declined from more than $5 two years ago to the current estimate of less than $2.

With the stock selling for about 150 times estimated earnings for 2012, I would avoid the shares and look instead for companies that are actually increasing their earnings at a rapid clip with valuations that are a fraction of Amazon's.

Steve Lehman

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