For example, Amazon has about half the market cap of walmart, but has 10% of the revenue. If you think Amazon can expand 5x, then focus on making similar margins as walmart, that would justify the current price.

While I think Amazon could potentially grow their revenues 5x, I don't think it makes a lot of sense to own something that has to grow 500% to be fairly valued. To me that shows just how absurd their current valuation is. If I have a company grow 5x I'd like to think I'll make some money. In this scenario though, it just becomes fairly valued at that point.

Frankly, I'd love to own some Amazon stock. I think it's an amazing company with lots of potential. I just can't justify paying the current valuation. I'll probably regret it someday, but for now I'll stick with Apple and their 7 pe. Even if they lose all growth its worth much more than this. It's priced as if they are going out of business right now. I'd pay this much for either their iPhone or iPad business, not to mention having both, Mac, iPod, and anything new they come up with. They sold > 75 million devices last quarter. Doesn't exactly seem like a dying business to me.

If you "know" a company is going to grow 5x, other people are going to know that too. And if I know a company's stock price will soon be 5x what it is today, I'll happily pay 2x for it; 2.5x return is still amazing. Hell, I'd pay 4x today's price, because a 20% return is nothing to sneeze at. Other people will too. Pretty soon today's price becomes tomorrow's (estimated) price, with various discounts applied for risk and whatnot.

True, but based on our logic and math, it has to grow 5x to break even. Apparently everyone "knows" it's going to grow 6x soon. It just seems to me there aren't any discounts being applied for risk.

While I have no doubt amazon can grow 5x, I do have some doubt as to timeframe. If it did it this year I'd be happy to own it at these prices. I think it's probably at least 5-10 years from that. 0-20% return over that timeframe isn't very good.

I think your take is reasonable.

That makes amazon overpriced by, what, 25%? Which is not particularly shocking. Lots of stocks are a bit overpriced. AMZN is popular. Don't buy it. Shrug.

When you compare a 3000 P/E to a 20 P/E, you might come away thinking amazon is overpriced by a factor of 100, which would be shocking. But I don't think there's any reasonable case that it's overpriced by a factor of more than 2.

Depends. If you think it's growing 10x, then it is discounted. I arrived at 5x by working back from the stock price, doesn't really mean that's the "right" answer. I'm not trying to justify amazons price, just explain what the people who do believe in it are thinking.

Amazon can't grow 5x without taking share from WMT. That should explain part of the valuation gap.

Is it not fair to ask when Amazon, a company which is 20 years old next year, will start making significant profits if it isn't now?

After all, this isn't some little start up that's only been going a couple of years - by tech standards Amazon is part of the old guard.

You should think of Amazon more like a real estate holding company. You could be incredibly successful buying and selling properties and never actually turn a profit, because you continually reinvest in new properties. You could easily have no profits and still have assets worth billions.

That's what Amazon is, except their assets are market share and infrastructure.

Maybe 20 years is too long for you to wait, but that's fine! The stock is priced accordingly so just cash out and let someone sweat the final liquid value of the assets.

A billion in enterprise revnue is nothing to sneeze at.

http://www.businessinsider.com/google-generates-1-billion-on...

Yup. Just noticed the extra post. Thanks.

>I think it might be fairer to look at AMZN's price to revenue ratio and compare that with other big companies which have margins AMZN might reasonably have when they start trying to make profits.

There is no indication that they will ever make huge profits. The Amazon you see is that Amazon you WILL see for the next 10-15 years at least.