World's Scariest Stock:

Looks can be deceiving. Think of Dr. Jekyll and his evil alter ego Mr. Hyde. Or the full-moon-triggered transformation of the Wolfman. Or even the madness lurking behind the mild-mannered facade of Norman Bates. Right now, investing in (Nasdaq: AMZN  ) seems similarly scary to me. The company seems so nice, but it has the potential to inflict a world of hurt, given the right set of circumstances.

Pardon me for getting so into the scary analogies, but I love Halloween. And is a downright scary stock right now. It's a great company, one of my all-time favorites, with smart, visionary management. But this is a blood-curdlingly terrifying time to buy its shares, and I can't help wondering whether investors who buy in now will wind up clubbed, clawed, or bleeding in the short term.

Get this stock a hockey mask
Amazon shares recently stumbled, after earnings weren't quite good enough to please investors. But in the last 12 months, Amazon's still up an incredible 136%, and trading at nosebleed multiples. Check out its trailing price-to-earnings ratio of 104 and its forward P/E of 56. It has a PEG ratio of 3.39, compared to 1.0 for a standard bargain-priced stock, making this stock way too rich for my blood.

Amazon stands out even among its pricier peers. Even Google (Nasdaq: GOOG  ) doesn't look this crazy, with its trailing P/E of 53, a forward P/E of 33, and a PEG ratio of 1.24. Major profit declines, including last quarter's charges, may have given eBay (Nasdaq: EBAY  ) a trailing P/E of 308, but its forward P/E is a more reasonable 22, and its PEG ratio is 1.27. These may not necessarily be screaming bargains right now, but they're not nearly as outrageous as Amazon.

Like Jekyll and Hyde or the Wolfman, this monster may yet revert to a harmless state. After watching Amazon for years, I'm sure that eventually, investors will once more sour on the company's future growth -- just like they did in 2006, when I was bullish on the stock -- and knock its shares back to bargain prices. We may be seeing the first signs of this fear in recent headlines trumpeting concerns about Amazon's margins. No kidding! Amazon has never shied away from sacrificing margins for sales volume, and it's now taking on formidable new competitors like Apple's (Nasdaq: AAPL  ) iTunes.

A Nightmare on Wall Street
While I don't think long-term investors who already own should run for the hills, since it is a great company, I also don't think they should be shocked if the stock recedes from these lofty highs in the short term. That's when new investors should look to get in, or existing shareholders should buy more. Waiting for short-term negativity to uncover such buying opportunities is how investors get dirt cheap dream stocks and really make the most of the cash they put into their investments.

Do you agree that shares have gone temporarily insane, and that now's a terrible time to buy? Is it really the scariest stock in the world this Halloween season? If you think so, head on over to our community intelligence database, Motley Fool CAPS, and mark an "underperform." Based on your participation, we'll single out the scariest stock on Oct. 31. So stay tuned and have a happy Halloween!

Want to know what other companies give us the frights? You can view the rest of our hair-raising stocks here.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539326, ~/Articles/ArticleHandler.aspx, 10/28/2016 12:30:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
AMZN $818.36 Down -4.23 -0.51% CAPS Rating: ****
AAPL $114.48 Down -1.11 -0.96%
Apple CAPS Rating: ****
EBAY $28.81 Down -0.01 -0.03%
eBay CAPS Rating: ****
GOOGL $817.35 Down -4.75 -0.58%
Alphabet (A shares… CAPS Rating: *****