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Amazon is the new Walmart

businessinsider.com

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Re: Amazon is the new Walmart

#11

Post by Nokinside »

mikehines wrote: post #5
Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

Amazon is also on the infrastructure platform business that powers various multi-billion business like Netflix and Dropbox.

Another small margin business with lots of competition.

Re: Amazon is the new Walmart

#12

Post by Nokinside »

pmoriarty wrote: post #6
Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

If there's one thing that I've learned from living through the first internet bubble is that there's no such thing as a stock price that's "too high" or "overvalued". Some people will pay anything as long as they think they think they can sell it for a profit to the bigger fool.

This is true.

Unfortunately markets have limited supply of fools with money. When the supply runs out, there is a correction.

Figuring out when the correction happens is hard. It can take several years before the AMZN value is corrected. I would say that it happens within three years, but I could be wrong.

Re: Amazon is the new Walmart

#13

Post by pmoriarty »

Nokinside wrote: post #12
pmoriarty wrote: post #6

Earlier quoted context omitted.

If there's one thing that I've learned from living through the first internet bubble is that there's no such thing as a stock price that's "too high" or "overvalued". Some people will pay anything as long as they think they think they can sell it for a profit to the bigger fool.

This is true. Unfortunately markets have limited supply of fools with money. When the supply runs out, there is a correction. Figuring out when the correction happens is hard. It can take several years before the AMZN value is corrected. I would say that it happens within three years, but I could be wrong.

People were constantly predicting Amazon's fall (and that of a ton of other skyrocketing stocks) throughout the whole of the first internet bubble. They were all wrong, until they were right.

Re: Amazon is the new Walmart

#14

Post by Nokinside »

pmoriarty wrote: post #13
Nokinside wrote: post #12

Earlier quoted context omitted.

This is true. Unfortunately markets have limited supply of fools with money. When the supply runs out, there is a correction. Figuring out when the correction happens is hard. It can take several years before the AMZN value is corrected. I would say that it happens within three years, but I could be wrong.

People were constantly predicting Amazon's fall (and that of a ton of other skyrocketing stocks) throughout the whole of the first internet bubble. They were all wrong, until they were right.

There is difference between company failing and company price collapsing. Amazon may do fine, it's just that Amazon's price will be radically adjusted.

When Internet bubble busted in last time. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) lost 75% of their market value.

Intel was valued $73.94 in 2000, now it's 36.3. The value of the stock never recovered even if the company is still going strong.

Microsoft's value has been below it's bubble valuation 16 years and it broke it's previous record last year.

It took Amazon stock price 10 years to recover from 2000 bubble.

Re: Amazon is the new Walmart

#15

Post by mrep »

Nokinside wrote: post #11
mikehines wrote: post #5

Earlier quoted context omitted.

Amazon is also on the infrastructure platform business that powers various multi-billion business like Netflix and Dropbox.

Another small margin business with lots of competition.

25% margin is pretty good (not apple good but still pretty good) [1] and the market is expected to continue to have high growth [2].

AWS is the main reason their stock is so high.

[1]: https://seekingalpha.com/article/4042924-amazons-margin-situ...

[2]: http://www.gartner.com/newsroom/id/3616417

Re: Amazon is the new Walmart

#16

Post by MarkMc »

Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

> Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price.

3% of $16 trillion is $480 billion dollars. At a price-earnings multiple of say 10 the market cap would be $4.8 trillion. If $475 billion grows at 10% per year then it will take 24 years to grow to $4.8 trillion.

In 24 years total global retail sales might grow from $22 trillion to say $160 trillion. Is it so unreasonable to think that Amazon might have a 10% share of total retail sales in 24 years?

Re: Amazon is the new Walmart

#17

Post by ata6187 »

Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

I have no position in AMZN besides passive index holdings but clearly not "everyone" agrees the stock price is overvalued as many continue to hold onto shares at the current price.

More importantly, in what world does a stock price need to justify a "10% ROI" or it's overvalued?

This isn't the 1960s anymore, and even if it was a 10% ROI would not be the equity risk premium, maybe 5-7% ROI. One also needs to adjust for inflation which AMZN does better than Treasuries. Looking at profits and ROI is no longer standard practice for many market participants, particularly in technology it's clear secular N/A dividend and negative P/E are now accepted practices, for better or worse.

The price of AMZN may go down, way down, or it might not, but either way your valuation technique is a dangerous one and I am very curious what stocks you do like if you are looking for a 10% ROI?

Re: Amazon is the new Walmart

#18

Post by ata6187 »

MarkMc wrote: post #16
Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

> Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. 3% of $16 trillion is $480 billion dollars. At a price-earnings multiple of say 10 the market cap would be $4.8 trillion. If $475 billion grows at 10% per year then it will take 24 years to grow to $4.8 trillion. In 24 years total global retail sales migh…

I agree that comment was poorly worded and confusing. I think what they might have meant was AMZN would have to earn $500B of profit over the next several years and based on 3% profit margin that would need $16T in revenue to earn that amount of profit.

The math works out to approximately 7 years, though the comment just wrote "some time in the future".

Re: Amazon is the new Walmart

#19

Post by jtarb1 »

pmoriarty wrote: post #6
Nokinside wrote: post #2

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace,…

If there's one thing that I've learned from living through the first internet bubble is that there's no such thing as a stock price that's "too high" or "overvalued". Some people will pay anything as long as they think they think they can sell it for a profit to the bigger fool.

The problem is akin to the land speculation from before the Great Depression. At some point, someone gets "hung" with it because there is no one else to sell it to. It'll be interesting to see where Amazon falls, though it may be many years.
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