Shares of (NASDAQ:AMZN) were skidding once again last week, hitting a 52-week low after the online retailer posted yet another disappointing earnings report. However, the drop should come as little surprise given the contents of the release. An operating loss of $544 million and a per-share loss of nearly $1 is significant, and the failure of the Fire Phone, for which the company is taking a charge of $170 million, represents misspent assets and is symbolic of a company that may be trying to do too much at once. 

Unfortunately for shareholders the idea that profits are just around the corner for Amazon has always been a fiction. For years, analysts have assumed EPS would grow at a steady rate for the next five years, as they do with nearly every company, but they have always been forced to drastically reduce their estimates as the horizon gets shorter.

For example, in May 2013, analysts had projected a 2014 EPS of over $3. Now, following the dismal third-quarter report, they expect a per-share loss of $0.12. It's hard to understate the difference there, or how badly analysts are misreading the company. 

Similarly, in October 2012, the consensus for 2013's per-share profit was $2.50. Instead, Amazon made just $0.59 a share that year. Unsurprisingly, analysts have yet to learn from their mistakes since forward estimates are still just rosy. In 2015, the consensus sits at $1.91; in 2016, at $4.90, and for 2017, it's all the way up to $9.26.  

Why it matters
Projected free cash flow, which is closely tied to forward earnings,  is perhaps the most important metric in determining a company's share price since the discounted cash flow model, which estimates a company's worth based on the value of future cash flows, is the most popular valuation model on Wall Street.

If analysts gave Amazon more realistic forward estimates, the stock would probably trade for significantly less than it does today.  For comparsion, other online retailers that are growing much faster than Amazon such as Zulily or Viphsop Holdings trade at much lower forward multiples.

The idea that Amazon is building competitive advantages for the future has always been an appealing one for investors, but until the company can show meaningful profits, that premise is just an unproven theory. And the more Amazon strays from its competitive advantages, such as its folly with the Fire phone, the weaker that argument becomes. 

Bezos meant it when he said it
Amazon CEO is famed for thinking long term, being willing to sacrifice profits for investing in the future and gaining market share, and ignoring the Wall Street hysteria about quarterly earnings. And he's led his company that way since the beginning. In 1997, he summed up his philosophy: "It's all about the long term. We may make decisions and weigh trade-offs differently than some companies." Going on, he said the company is "working to build something important, something that matters to our customers, something that we can tell our grandchildren about."

Amazon's chief is clearly sticking to his guns as the company has branched off in any number of directions from cloud computing services to digital media to grocery delivery. 

Will the strategy pay off?
Amazon bulls continually invoke Bezos's mantra when defending the company and its strategy, and they point out the company's investment in fulfillment centers and other infrastructure. But most successful corporations plan for the future and still turn a profit. Even McDonald's, for example, which is going through its worst period in over 10 years, still plans to open 1,400 restaurants this year.

Similarly, supporters often cite Amazon's sales growth rate, which, at 20% is still strong, but there are other megacap stocks that offer similar top-line growth and still turn a profit. Google, for example,  is projected to grow sales 19% next year, and it has a profit margin of nearly 20%. 

At least one figure supports Amazon's shift to profitability. Gross margin has steadily improved in recent quarters, moving up from 27.7% to 28.9% in its most recent report, while operating profit fell because of higher fulfillment, marketing, and technology and content costs. That change seems to signal that the company's core operations are becoming more profitable. 

Re-set your expectations
With revenue growth still hovering around 20%, Amazon's future profitability still seems credible, but if that figure slides a few points, the stock could plunge.

For the current holiday quarter , Amazon, known for its conservative guidance, forecasted revenue growth at just 7%-18%. Even if it tops that mark, no business can grow by 20% forever. That pace may not slip this year, but growth in the teens seems on the horizon.

With a triple-digit P/E and a market value above $100 billion, Amazon has long been an enigma on the stock market, but its days of defying the market's logic may soon be coming to an end.