ROFL! 5yr P/E/G of 17?!
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2018-01-12 09:56 by Karl Denninger
in Company Specific , 209 references Ignore this thread
ROFL! 5yr P/E/G of 17?!
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No, it's not a bubble.

Not at all.

The FORWARD P/E on this piece of dogsqueeze is 162 and that assumes a doubling of EPS over the next 12 months.

The stock is up nearly 60% over the last 12 months which radically outstrips both earnings and revenue expansion.

May I note that this is a company that makes 1.2% in profit?  And by the way, that's not an aberration; the firm has basically never turned an operating profit better than a grocery store.

Ever, at any time in its history, which I remind you dates to the .COM start in the 1990s.

This is a company with more than $600 billion in market cap that generates only $16 billion a year in operating cash flow and just $10 billion in levered free cash flow (due to debt service, mostly.)  Said company has never, in its entire corporate history, managed to turn its insane sales rate into actual profits.

Ever.

An aggressively growing company with a reasonable forward profit prospect may justify a P/E/G of 2ish.  Maybe 3.

17 is more than five times any other firm with real tenure in the market in history.

If you're in this stock now I hope you're prepared to lose far more than half from the current price.  I don't know how high it will go before that happens, but I'm damn sure it will.

You heard it here first: A collapse to somewhere around a reasonable P/E/G ratio would cut the price of the stock to about $250.

And that's assuming they're not forced to collect sales tax on all their so-called "third party" sales (they will be, one way or another, and probably this year), in which case that nice operating margin business (a 15% commission for what amounts to handling credit card charges at under a 2% discount rate) will contract materially and bury the company in a permanent flood of red ink.

Back in the 1990s Amazon went from about $2/share (in today's split-adjusted figures) to over $100 in the space of a couple of years.  I gave an interview shortly after selling MCSNet in which I was asked about whether I thought it should be bought.  My reply was that from the firm's history of inability to generate anything appreciable in actual profit margin, despite having a very impressive sales growth rate, I believed it was indeed a $2/share company and would be again.

It bottomed at roughly $4 in the .COM crash, which sounds like a horrid miss -- unless you bought it at $100, in which case being wrong by 50% still meant you lost damn near everything.  Of course if you held on you now have 12x your money, which some will point to in defense of doing so. 

However, if you had sold at $100 and bought at $4, well, well instead of having 12x your money you have something like 300 times as much, and you got to buy 20 times as many shares as well which means on a compounded basis you now have 6,000 times your money.

So please, do buy today at $1,300/share.  Trump relies on you eating 95% of that plus the entire opportunity cost from being in during the next crash for his daily proclamation on the "record stock market."  Oh, and do it on margin too.

Why not?  You can't lose with MAGA and Trump, right?

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Goforbroke
Posts: 7200
Incept: 2007-11-30
A True American Patriot!
Time to feed the chickens.
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Bezos and Trump seem to have a little battle going on.

Trump brings up (and supports) the internet tax, then Bezos' Washington Post publishes how Trump called certain nations "****holes," and then Bezos declares he's donating $33 million for scholarships for dreamers.

Something tells me Trump wouldn't cry if AMZN imploded.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson
Flappingeagle
Posts: 2719
Incept: 2011-04-14

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I'm not an options guy so I am probably misunderstanding this but apparently the PutsforJanuary 18, 2019 @ $400 can be had for 0.25 each. So I could buy 4 contracts for $100?

Might be a nice flyer.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Aztrader
Posts: 7913
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Scottsdale, AZ
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Did you go over the retail sales for December? They sucked going into Christmas because everyone blew their wad in November.

Electronic sales were negative going into Christmas even with the stores selling 55" Tv's for $475.00.

Short retail today and in a few months you will be rewarded. Typical of January, our sales slowed drastically. This pump and dump is going to be a dump truck of a dump first quarter.
https://www.zerohedge.com/news/2018-01-1....

Nevertoolate
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This means Jeff is not the richest man in the world?

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Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
Limberlumber
Posts: 211
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North Compton, CA
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@Flap...I like your flyer, but give it some more time...
Buy the Jan 17, 2020 $500 put for $3.00...if AMZN goes to $250, those puts are worth at least $ 25,000.

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"Economic Progress one Funeral at a Time". - Steve Keen

Limberlumber
Posts: 211
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North Compton, CA
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OK...I just bought one of the Jan 2020 $500 puts for $2.50...I'll wait.

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"Economic Progress one Funeral at a Time". - Steve Keen

Curbyourrisk
Posts: 4030
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Farmingdale, NY
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Lately, my argument to annoy people, is just say... "It ain't a bubble til it pops".

So keep on buying those over valued trading assets.

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Time is up.

I hate to burst your bubble, but there is no Santa Claus, the tooth fairy does not exist and American justice does not involve the courts.
Highaltitude
Posts: 8
Incept: 2018-01-02

Colorado
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When I was a kid my grandpa was invested in stocks for retirement. He always told me never invest in a stock that has a P/E over 10 and he preferred them much lower than that. He also told me never buy a stock that does not pay dividends.

That formula worked for my grandparents for 60 years. Nope, they did not get rich quick but they rarely lost any significant value in the stocks even during downturns. They did not buy and sell but they held long term and they cashed those dividend checks and lived a pretty good retirement. Yes, they lost out on opportunities to get rich quick but they also slept well at night knowing the stocks they bought would still be there in the morning.

Of course today's investor will tell you that the old school methods are outdated and you are not supposed to care about Dividends or P/E ratios. I am not so sure. I think the switch from investing in companies that had rock solid financials and did something you believed to chasing ever climbing BS valuations is one of the reasons we are so screwed today. I am sure they would never be able to understand how these companies get investors or how these stock prices are able to rise with no actual profit. Then again, they lived through the 1920's probably not much different than what happened then but on a bigger scale.

Every time I think I should jump into the market I remember what he told me and I just forget about being in the market at all. I already have enough grey hair.
Goforbroke
Posts: 7200
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In 2008/2009, when the market crashed, SPY went from 150 in Oct 2008 to 67 in February 2009. That's 83 SPY points (55%) in 4 months. SPY is now at 277.

QQQ and DIA were similar. QQQ ... 100 to 19 (now 164), DIA 140 to 64 (now 257)

Given that drops generally take a much shorter timeframe than gains (except in this market), it appears that when it comes, it will come fast.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson
Aztrader
Posts: 7913
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Scottsdale, AZ
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Just saw the propaganda article pop up:

http://markets.businessinsider.com/news/....

This has nothing to do with confidence. It has everything to do with retailers giving the stuff away. Both Macy's and kohl's were handing out rebates or cash certificates amounting to 30% of the purchase on top of massive discounting.
Flat screens were flying out the door for under $400.00. I was buying 556 ammo for 24 cents a round with free shipping from RETAILERS, much cheaper then my distributors. Ask yourself why........................

They pulled forward 6 months of demand in 2 months. How will the retailers hide this by mid year?
Rollformer
Posts: 188
Incept: 2013-02-13

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I really like the concept of indexing, and the quickening elimination of the active managers. Efficient market hypothesis tells us that the price of a security represents all known news, etc., and opinions of those in the market. That, of course, only works when there is speculation. The speculators are getting crucified.

Do active managers always beat the market? No, and they don't do it on average. But they serve a damned valuable role in the pricing of securities.

Now, we have "machine learning". Most of the money coming in is going into index funds, so the prices of the things in the indices goes up. The machines are probably learning this, never mind that you could train an ape to do it, and save a ****load of money on cloud time and physics PhDs who would otherwise be adding value somewhere else in the economy.

So if you want value, look outside the indices. If you want to make money, sit on the sidelines until the crash comes, and start buying under-leveraged companies with solid cashflows and dividends.

Rollformer
Posts: 188
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Quick numbers on Amazon, rolling forward 2016 financials:

1.) NA Sales Growt 25%
2.) Europe Sales Growth, 15%
3.) AWS Sales Growth 10%

Operating Profit
1.) Start NA at 3%, margin BPS increase 3% per year
2.) Europe becomes break-even immediately, and stays that way.
3.) AWS profit held at 25.4%

At this growth rate, the current market cap, assuming 20x oeprating income, becomes fair in 2026, with sales of $952.7 billion.

TOTALLY, TOTALLY Gonna Happen. Definitely. For sure.
Rollformer
Posts: 188
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A little more math: to get to my 20x operating income valuation, it appears they could just increase prices by 20% on everything everywhere. (Price drops to the bottom line).

Maybe that's the plan. I'll see if I can get an Op-Ed in the Washington Post.
Bfxcusd
Posts: 141
Incept: 2007-07-20

Flagstaff, AZ
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Starting two quarters ago I made the decision I was going to buy put options the day of earnings for the next 8 quarterly earnings. My reasoning was their is no way they don't take a huge hit at some point in the next 2 years. Of course the market will probably make me wrong but I feel like it's too good of an opportunity to pass up.

On another random market note, my brother called me a week ago asking for investment advice. He has $60,000 in cash that his wife has just agreed to invest. He works for a huge mult-national firm. He said his co-workers are all telling him to invest in amazon and tesla. I started laughing and told him the strategy I was doing buying puts on amzn. I also told him amzn would be my #1 stock to not own and tesla would be in my top 5 of not to own. I spent an hour explaining evaluations and such and convinced him to not get into the market at all right now. Just thought it was interesting to hear what stocks are being touted at a huge firm.
Goforbroke
Posts: 7200
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Time to feed the chickens.
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FWIW ... Never give friends or family investment advice. You will only end up losing, regardless of how the market goes.

AMZN and TSLA are up on average roughly 7% from a week ago. At an $60,000 inital investment, that's roughly $4200.

Sigh.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson

Roundabout
Posts: 139
Incept: 2009-10-16

South Side of the Sky
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"The FORWARD P/E on this piece of dogsqueeze is 162 and that assumes a doubling of EPS over the next 12 months."

By the time I reached this third line, I already knew what company you were talking about :)

They've got a pass for years now, I have no idea how it continues. Any other company would be pummeled for such a poor showing - why is it this one company, above all others, gets a free pass? Years and years have gone by and still nothing - no profits and no punishment.

I have long refused to do business with this company and it's psychotic founder (I remember an interview years ago on 60 minutes or Dateline, where he could be heard down the hallway from his office maniacally laughing). Even way back then I knew something wasn't quite right about this guy. Now I know for sure. I go out of my way to buy local or if necessary, from eBay or WMT/HD online. Amazon doesn't have the best price on much of anything anyway, so I'm not sacrificing much at all.

Still waiting patiently for the day of reckoning...
Tickerguy
Posts: 151167
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Walmart has SERIOUSLY upped their game. Not only are they frequently cheaper they'll do honest 2-day shipping (and actually hit it) for free on anything over about $35. Never mind that even on a $2 item shipping is free if you have it sent to the WalMart of your choice, which has advantages -- especially if traveling, in that you can direct it ANYWHERE at zero cost if you have a couple of days.

Remember that WalMart is ALREADY shipping crap from everywhere to everywhere, so they have a serious advantage if you send it to a store in terms of cost....

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Winding it down.
Ktrosper
Posts: 3328
Incept: 2010-04-06

ft collins co
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If I've got one bitch about WM, it's the ease of return/refund/no-receive help. The model seems to be to pass problems on to the 3rd party vender, whereas Amazon it's one or two clicks and your refund/return is processed.

With WM, you contact them, complain that "I didn't receive my thing".. they give you and email/phone. You email/phone the vender and try to resolve. If the vender is nowhere to be found, you go back to Wm and bitch again before getting your money back.

Not a huge deal, probably. As returns/no-receives are probably rare. But I hope they fix that.

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Tickerguy
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I had one no-receive a few months ago -- 30 seconds on their online chat and the refunded the money. Pretty painless all things considered.

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Winding it down.
Johnnyb
Posts: 46
Incept: 2014-10-21

Tulsa, OK
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Highaltitude - "Of course today's investor will tell you that the old school methods are outdated and you are not supposed to care about Dividends or P/E ratios."

I think one of the problems is the high corporate tax rate. Dividends and earnings get *killed* in taxes. The tax system means that businesses have to care about things other than profits in order to grow. We should get rid of double-taxation altogether.
Tickerguy
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Johnnyb: Meh. Corporate structures come with material advantages, and some disadvantages. One of the prices is the tax structure.

Don't want that? Cool -- be a partnership and eat the personal liability.

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Winding it down.

Aztrader
Posts: 7913
Incept: 2007-09-10

Scottsdale, AZ
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Hit our Sams club that is closing with everything at 25% off. Was mobbed this afternoon. Looking for a 65" TV for about $650.00. Will see what's left......
Bodhi
Posts: 185
Incept: 2008-02-23

Georgia
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Quote:
Amazon doesn't have the best price on much of anything anyway, so I'm not sacrificing much at all.


No doubt about that anymore. I still have a need for small capacity (2-4GB) compact flash cards that I use to make flash drives for voicemail systems. I needed more yesterday so I went to eBay to get an idea of the current market. I then checked on Amazon and found their prices to be double or more.

Wondering what it will take to get people to realize Amazon is screwing them on price? Doubly so if the Feds crack down on their sales tax avoidance.
Tickerguy
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The thing I find amusing is the amount of instant data-mining price-match behavior among some of the "bigger" sellers. It takes place in SECONDS.

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Winding it down.
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