At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
What is it with Wall Street these days? Have they learned nothing from the fiasco that followed gambling on subprime mortgages? Because from where I sit, that's just what the professionals seem to be up to lately: gambling.
Earlier this week, we watched in horror as Israeli i-banker Hapoalim Securities decided discretion was the better part of ... boring -- and rather than wait for Apple's
Yesterday -- again, mere hours before the earnings that are due out this afternoon -- Kaufman decided that the time is ripe to pluck Amazon.com
The timing couldn't be crazier -- but (at risk of further mixing this metaphor) this Fool wonders if Kaufman might be crazy like a fox.
Let's go to the tape
After all, few investors boast the kind of record that Kaufman claims. Within its flagship Internet software and services coverage area, Kaufman has earned a commendable record of nearly 62% accuracy on its recommendations over the past three years, racking up big points on picks such as Google
|
Companies |
Kaufman Bros. Says: |
CAPS says: |
Kaufman Picks Beating
|
|---|---|---|---|
|
Netflix |
Outperform |
*** |
30 points |
|
Drugstore.com |
Outperform |
*** |
53 points |
|
priceline.com |
Outperform |
* |
66 points |
(And so far, Amazon.com as well.) So suffice it to say, if you're going to seek Wall Street's advice on what to do with Amazon.com, you could do far worse than listening to Kaufman.
Amazon: Buy the numbers
The more so because ... Kaufman is dead right on this one. Amazon is a winner. In fact, I recently argued that: "debt-free, and boasting prodigious free cash flow and a rip-roaring growth rate," Amazon could very well turn out to be the best pick in all of retail. When I made that argument, moreover, the stock was selling for $131 and change. Today, at one-twenty-one and change, it's just that much better a bet.
You see, its nosebleed-inducing P/E notwithstanding, this company is a whole lot more profitable than GAAP accounting rules allow it to portray itself. Whereas Amazon's most recent financials show the company to have earned "only" $743 million over the past four reported quarters, a review of its cash flow statement shows the company to be in fact more than 150% more profitable than this; free cash flow for the same time period rang the register at more than $1.9 billion.
What this works out to, therefore, is an enterprise valued at just 25 times its cash profits, yet expected by most analysts on Wall Street to post growth rates north of 26% per year over the next half decade. It's not every day you see a company so good, so out-and-out dominant, selling for a price so reasonable.
Foolish takeaway
Now, could Amazon blow its report later today, and make my optimism look foolhardy? Sure it could, and I admit that this risk makes me a bit nervous. Kaufman's brashness seems just a bit too reminiscent of poking-a-tiger-with-a-stick, with the-cage-about-to-open, for my taste.
But as things stand this morning, and based on the numbers we know as of this writing, the verdict is clear: Amazon's a winner.
