AMZN Priced for Perfection: Should Investors Worry?
By Richard Saintvilus - 04/27/12 - 11:20 AM EDT
Tickers in this article: AMZNNEW YORK (TheStreet) -- While I have never believed that there is such a thing as a "perfect stock," I have always remained cautious at stocks that I believed are "priced for perfection." Investors are often quick to throw valuation metrics out of corporate windows in favor of "zeal," a quality that flies in and attaches to names such as Chipotle
Perfect ProblemsAmazon is without question one of the best tech stories today. It is a wonderful company with one of the top three visionary CEOs in Jeff Bezos. But the stock is expensive -- there is no way to spin this. I have never been a fan to the so-called "premium pricing." I will concede that it has never served as an impediment to growth stocks like Amazon. The question for "perfect stocks" has always involved the challenges with growing into the valuation. In its Q4 report, the concern for Amazon seems to be its growing expenses and what appear to be shrinking margins. The company has always demonstrated a commitment to tackle new markets and seek growth opportunities. To that end, it had taken on facilities expansion in an effort to provide broader ranges of entertainment delivered over its new Kindle Fire tablet as well as the launching of its movie-streaming Prime service to compete with Netflix
The Perfect QuarterOn Thursday, the company reported Q1 earnings results that blew away analysts' estimates. The company reported net sales for the quarter of $13.2 billion -- representing an increase of 34% from the $10 billion that it reported a year ago. Consensus expectations for revenue were $12.9 billion. The company said its rise in sales was driven largely by increased demand of the Kindle Fire. Amazon also reported operating income of $192 million compared with $322 million a year ago. As great as these numbers were, what blew away the street was its EPS -- which came in at a stunning $0.28 cents, four times better than the consensus EPS estimates of $.07. Amazon: 1.5% Is 'Good Enough' >> In terms of outlook, Amazon said it expects revenue in the current quarter to grow between 20% and 34%, or to between $11.9 billion and $13.3 billion, which includes the negative impact of foreign exchange movements. Ahead of the guidance, analysts had expected second-quarter revenue of $12.8 billion. That was higher than the midpoint of Amazon's forecast of $12.6 billion. Overall, I have to say that I was exceedingly impressed with the report and the company was right for having made the significant level of investments in its infrastructure. Essentially, it paid money to grow -- a decision that was met with severe scorn. Facebook Has No Business Being Compared to Apple, Google and Amazon >> But today it is clear that the company is feeling a sense of vindication, and rightfully so. The company's goal was to build a system to support its vision of a larger business and in doing so it incurred some diseconomies of scale -- a sacrifice that (I assure you) many companies (going forward) will now look to make.
Bottom LineAs perfect as Amazon must be to maintain its lofty valuation, it seems the company is executing to perfection. Though it often remains in the shadows of Apple
Tickers in this article: AMZN
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