Amazon is a major threat to many industries. I’ve been watching the company roar higher and higher all the way past $900/share. A survivor of the dot com era, Amazon not only thrived; it single handedly disrupted numerous industries. Well established firms like Radio Shack are gone. High end retailers like Macy’s and Nordstrom are barely hanging on. And even giants like Walmart and Target are stumbling. Retail aside, Amazon is a force to be reckoned with in video entertainment, shipping, and perhaps even groceries.
Amazon is the world’s largest internet based retailer. Back in the 90s and early 2000s Amazon was primarily a book dealer. Nowadays they sell just about everything! As a matter of fact they may even begin selling groceries with Amazon Go. Users go into an Amazon grocery store, pick up the food they want, and simply walk out. The food then gets charged to their Amazon account. Amazon is even creating its own delivery network to compete with UPS and FedEx.
So essentially Amazon is a monster! The company seems to have an endless pathway towards growth. Even a conservative dividend investor like me can’t ignore this stock. Because of its disruptive nature it makes sense to buy as a hedge right? AMZN earned around $136 billion in revenue and made a profit of $2.37 billion. Yes, sales have grown astronomically in recent years. Unfortunately these sales come with a P/E of 187 (2016). Therefore, if sales slow Amazon’s stock could collapse. Even high growth companies like Nvidia have more reasonable P/Es (40).
Image by [nasdaq.com].
Furthermore, from an earnings standpoint WMT is still five and half times larger than Amazon. As ecommerce sales grow among traditional retailers Amazon’s growth could subside. This slowdown is reflected by some analysts. For instance, Value Line is predicting healthy growth but a share price of $600. By 2019-2021 Amazon could lose over 30% of its value despite strong earnings! Therefore, I can’t justify purchasing Amazon, even as a hedge. A 30% downside, even in a bull market, is just too much risk for me to bear.
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