When investors contemplate Amazon.com
Here are some of the industries and companies Amazon has disrupted (or is at least trying to disrupt):
Bookstore chains: Borders is bankrupt and liquidated; Barnes & Noble is hanging on for dear life in the dog-eat-dog world of bookselling. Amazon.com stripped them of their every advantage by providing better selections, major convenience, and massive price cuts. And of course, Amazon's Kindle originally set the e-book revolution in motion.
Electronics retailers: Circuit City's gone, and once-mighty Best Buy
Shoe retailing: Amazon owns Zappos; enough said. Can Gap's
Publishing: Amazon's CreateSpace allows artists to self-publish and distribute their work for a pittance. Customers order the works on a print-on-demand basis, taking a heck of a lot of the expense out of the publishing process and creating a win-win for Amazon and DIY artists. The middle-man model of old-school publishing could become yet another anachronism before too long.
The cloud. Don't forget the cloud.
Did I forget some? Most definitely. And just because Amazon's competitive presence in some areas hasn't taken a major toll yet, that doesn't mean it never will. Investors should really worry about whether the companies they own are in Amazon's crosshairs, because it's not a good place to be. Amazon has pretty darn good aim and a heck of a lot of firepower.
Here's another Amazonian element investors should fear, at least if they're thinking of buying in: its price. Amazon trades at 104 times forward earnings; its PEG ratio is a monstrously mind-boggling 7.38. The stock is horrifically overvalued. Yes, Amazon's brutal competitiveness translates into major growth, but I can't imagine the kind of insane growth coming to justify such nutty multiples. (For comparison, tech powerhouses Google and Apple are trading at forward P/E ratios of 14 and 10, respectively.)
The simple description of Amazon as an "online retailer" is a serious red herring when you consider the massive reach Amazon has. Don't buy Amazon. Fear it. And keep on the lookout for some temporary pessimism to deliver a serious whack to Amazon's stock price, so you can get in on the future of The Great Disruptor, too.
- Add Amazon.com to My Watchlist.