2-Star Stocks Poised to Plunge: Amazon?

By Brian D. Pacampara | More Articles
February 9, 2011 | Comments (3)

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online retail giant Amazon.com (Nasdaq: AMZN ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Amazon's business and see what CAPS investors are saying about the stock right now.

Amazon facts

Headquarters (Founded)	Seattle (1994)
Market Cap	$82.56 billion
Industry	Internet retail
Trailing-12-Month Revenue	$34.2 billion
Management	Founder/Chairman/CEO Jeff Bezos CFO Thomas Szkutak
Return on Equity (Average Past 3 Years)	25%
Cash/Debt	$8.76 billion / $647 million
1-Year Return	55%
Competitors	eBay (Nasdaq: EBAY ) Overstock.com (Nasdaq: OSTK )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 22% of the 5,291 members who have rated Amazon believe the stock will underperform the S&P 500 going forward. These bears include All-Star LucaC, who is ranked in the top 2% of our community, and baselineace.

Late last month, LucaC wrote that Amazon bear case all boiled down to price: "Outstanding company, too high valuation. 2011 will be the year when the market won't tolerate its high [P/E] anymore."

In fact, Amazon currently sports a lofty P/E of 72.8, representing a substantial premium to online retail rivals eBay (23.6) and Overstock (29.9), as well as brick-and-mortar foes Best Buy (NYSE: BBY ) (10.2), Target (NYSE: TGT ) (14.3), and Wal-Mart (NYSE: WMT ) (13.9).

CAPS member baselineace touched on Amazon's recent earnings miss:

You probably saw that Amazon.com tanked after reporting earnings. ... This came as no surprise to me. Margins have continued to compress as the company has opted to engage in price wars with Walmart, rather than focus on its other competitive advantages. ... Maybe [margins] aren't important to [CEO Jeff Bezos], but as evidenced by today's performance, they certainly do matter to the market.

What do you think about Amazon, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

The Steve Jobs Betrayal
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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Amazon and eBay are Motley Fool Stock Advisor picks. Wal-Mart is an Inside Value and Global Gains choice. Best Buy is an Inside Value and Stock Advisor selection. The Fool owns shares of Wal-Mart and Best Buy. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

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Report this Comment On February 09, 2011, at 4:04 PM, NobodysFool777 wrote:

Hilarious article !!! Especially considering Amazon is up and every other stock mentioned is down. Leading to the old adage that only a fool would take advice from a fool.
Report this Comment On February 09, 2011, at 4:09 PM, mikecart1 wrote:

NobodysFool777, a stock's price has little to do with a company's true success. Just look at any of the companies that have sold off parts of their company and have now 'beaten' the S&P500 the past 2-3 years.
The sooner AMZN falls below $100, the sooner this country can turn around. Way overpriced and its P/E ratio is on steroids!
Report this Comment On February 09, 2011, at 5:55 PM, isaachaze1 wrote:

It's always oddly comforting to me when amazon gets bashed. As someone who invested early on in amzn, I've followed the stock closely and all the doomsday comments. I remember early on, one "big time" analyist saying amazon would have to sell every book in the world to justify its valuation (they only sold books at the time). I remember thinking, wow, she doesn't get it.
I only start to get really nervous when analyists/pundits start singing the praises of amazon stock. That's when I'll start to get pretty worried. As long as people are bashing it, I feel ok.

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