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Amazon.com Inc (AMZN) Could Drop 50% »

Stock Short of the Week: Amazon.com Inc (AMZN)

Published by admin May 17th, 2007 in investing, stocks, business. Tags: , , , , .

Shares of Amazon.com Inc. (AMZN) are currently trading at just above $63 per share.  That’s 55x even the most bullish estimate of $1.14 per share for 2007 earnings.  At 25% projected annual earnings growth over the next 5 years, that gives AMZN a PE/Growth ratio of 2.2x.  Sure, we all love and use Amazon to have everything from the latest Harry Potter book to 2.5 lb. packs of rattlesnake meat conveniently shipped to our homes.  And, yes, AMZN did surprise investors with a particularly strong 1st Quarter (prfit margins expanded for the first time in two years). 

But, does that make AMZN significantly more valuable than other stellar performers? By comparison, Google (GOOG) is currently trading at about 31x earnings for a PEG ratio of 1.0x, Apple (AAPL) is also trading at roughly 31x earnings for a PEG ratio of 1.5x and Starbucks (SBUX) is trading at roughly 32x earnings for a PEG ratio of 1.4x.

Therefore, we would recommend purchasing the July ‘07 $60 puts (ZQNSL.X) - currently trading at $2.35 as a way to play this current overvaluation.

By the way, we do like GOOG at $472 a share.  We also suggest keeping an eye on TheStreet.com (TSCM) – start buying if it gets to the low-$10 range.  And, TheKnot.com (KNOT) is starting to look attractive again at around $18.75 per share – we’d be buyers if it goes below $18.

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