Is Amazon.com Really Worth $250?

So far in 2012, Internet retailer Amazon.com (AMZN 1.72%) has soared 45% as new iterations of its Kindle debuted, the movie and TV division is gaining traction, and it continues to decimate the brick-and-mortar business models of Best Buy (BBY 0.17%), Radio Shack (RSHCQ) and possibly even Staples (SPLS) and other office supply retailers. In short, it's become a retailing juggernaut, but at $250 a share it exhibits all the frothiness it ever has.

Amazon's had a knack of making short work of negative analyst sentiment, but with trailings multiples north of 300 and forward estimates at 100, a stock that sits at twice its sales and more than double its free cash flow, it's clear it can't afford to make any missteps. If thoughts of Netflix (NFLX -1.51%) last summer enter your head, you'll be forgiven for drawing the parallel.

So can Amazon avoid a fate similar to the online movie king? Let's take a closer look.

Amazon.com snapshot

Source: FinViz.com. N/A = not available; AMZN does not pay a dividend.

High-falutin' honeys
In addition to all those seemingly sky-high metrics, analysts have such high regard for its potential that when you factor in their earnings growth estimates into the equation, you get a PEG ratio of almost 9! That hardly seems more reasonable, yet how realistic is it to think Amazon can grow earnings at the 34% long-term rate analysts anticipate?

Over the last five years it was only able to achieve 25% growth annually, but that was before the tablet market really took flight and the Kindle became the powerhouse it is. Yet hard numbers are hard to find when it comes to examining Amazon's potential, and though it grew sales at a phenomenal 35% annual rate since 2007, margins have taken a hit, with net margins half of what they were just at the end of last year. They're but a fraction of what they were five years ago.

Compare that to Apple (AAPL 0.22%), which has also enjoyed heady revenue and profit growth, but also sees its net income margin nearly double what it was half a decade ago. Wall Street isn't giving it the same kind of benefit of the doubt they're handing Amazon, with long-term profit growth of just 22%. Yet factor in where it trades now, and Apple's PEG ratio is barely two-thirds of what its current multiple is.

Hedge fund operator Whitney Tilson goes so far as to say that Netflix is where Amazon was 10 years ago, but without the debt and capital intensive business model. It's why in a toss-up between the two Internet businesses, he prefers the movie mogul to the e-tailer  .

Price is what you pay
As I said, Amazon has often found a way to make analysts look silly. Often, but not always, and in this case I have to agree with those find it expensive. Not that its Kindle won't catch fire and its movie dreams won't be successful, but the kind of momentum being factored in by Wall Street seems difficult to maintain.

In one of those "I'm sure I'll regret this in the morning" moves, I'll be rating Amazon to underperform the broad market indexes on Motley Fool CAPS, the 180,000-member-driven investor community where informed opinion is translated into stock ratings of one to five stars. The Internet retailer has long held a below-average two-star rating, despite 80% of the 6,621 members weighing in think it will beat the Street.

By making either a bullish or bearish CAPScalls I hold myself accountable for the opinions I express here, but you can tell me in the comments section below whether you agree Amazon.com, at $250 a share, is a bit much to pay for the profit and revenue growth being forecast.