Even though the stock is trading at a more reasonable forward price-earings ratio of 59, Amazon.com Inc. (AMZN, Financial) still has further to fall before it's a bargain. The retailer's AWS cloud platform is not that great, there is tons of competition and the company still needs Oracle (ORCL, Financial) to succeed. However, it made the rash decision to drop the database company altogether in favor of the same company's third-tier database technology. This is just one of many reasons to avoid the stock until further price reductions.
Granted, betting against Amazon while going into the holiday season could be like going against the Crimson Tide in college football this year. While the e-commerce company is a cash-producing behemoth, trading 25% lower than just a couple of months ago, it has also long enjoyed the favor of Wall Street, who kept pushing it to the next level. The company's stock has outpaced the underlying growth for years. In fact, even with its recent price drop, shares are up 33% year to date. The downward trend is likely to continue.
While I'm not one for trend lines or stock charts at all, when judged against big retailer competition like Walmart (WMT, Financial) or Target (TGT, Financial), Amazon still enjoys being valued two to three times higher. The same thing can be said even when it's put up against other tech names like Google (GOOGL, Financial) or Apple (AAPL, Financial). The company's market capitalization still needs to be cut in half to reach some resemblance of parity. Even Alibaba (BABA, Financial) looks super cheap compared to Amazon, trading at just 23 times forward earnings. The Chinese company's Singles Day makes the entire online spending from Black Friday (or rather Thursday afternoon) through Cyber Monday look paltry, raking in close to $30 billion in 24 hours versus an expected $15 billion.
Strength in the U.S. dollar will help the domestic economy, but a recession or correction is coming. If the Nasdaq falls 50% from the May all-time high, it will still be 1,000 points higher than its pre-housing crisis price. That would be closer to the bottom level of a potential recession in 2020. Of course, if that happens, the stock would likely fall at roughly the same rate, putting the price near $1,000 per share. It's been hard to compete with Jeff Bezos's company so far, and Amazon still deserves a lot of credit for truly delighting customers. It just doesn't garner an investment.
Disclosure: I am not long or short any stocks mentioned in this article.
Read more here:
