Never Short Amazon.com!
Amazon.com (NASDAQ: AMZN) may just be the most unique stock trading on Nasdaq. Amazon is undoubtedly one of most successful companies on the planet and a true testament to American capitalism. Amazon emerged from the collapse of the tech bubble to become one of the shining jewels of the American economy and one of the largest companies in the world.
Since Amazon's IPO in 1997 the stock has gained 12,312%. Despite this pedigree, however, the stock's valuation appears to be nearly impossible to justify. The company already has a market cap of $113 billion, but the market is valuing it as if it was a hyper-growth small-cap name. Simply, it is hard to find a more expensive stock on a valuation basis anywhere.
This is a large cap name that is trading at an almost unreal trailing P/E of 113, a forward P/E of 98, and a PEG ratio of 6.47. Even more fascinating is the fact that AMZN's valuation just keeps getting richer and richer and the stock rarely experiences a pullback that lasts for any significant period of time. This is very rare indeed.
Normally, stocks trading at these kind of nosebleed valuations eventually succumb to massive corrections. Last week, the company released its third quarter earnings results, badly missing analysts' estimates. Amazon reported net income of $63 million or $0.14 per share compared to analysts' EPS estimates of $0.24. Net sales came in at $10.88 billion which also missed Street estimates of $10.93 billion.
The stock immediately plunged as much as 17% on the news, and it looked as if the Street may finally reassess AMZN's valuation. Inexplicably, the pullback has only lasted a few days. In the after hours trading session last Tuesday, in the wake of the disappointing earnings release, shares hit a low of $184.59 after closing the regular session at $227 and change.
The stock has since rebounded in extremely strong fashion and on Monday is trading at $214.15, down just 1.48% in a very bad broad market tape. Although AMZN has not made it back to pre-earnings levels yet, it appears that it could do so in a matter of days. It is just incredible how the name can continue to levitate despite bad news and an astronomical valuation.
Surely short-sellers in the stock must have felt very confident after seeing the company's Q3 earnings. It appeared that AMZN could easily keep falling in subsequent sessions. The exact opposite, however, has occurred and shares are again trending strongly higher. Simply put, this is a name that short-sellers should approach with extreme caution. Despite having every reason to go down, AMZN has once again solidified its reputation for being impervious to market gravity.
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