Amazon is one of the stocks that baffles me constantly. From a valuation perspective, the stock would be highly overpriced. With a P/E of 92, it is 4 times more expensive than EBAY, 6 times more expensive than Yahoo! (YHOO), and 3.8 times more expensive than Google (GOOG). Even Apple, which seems to have unlimited creativity, and historically has been able to monetize it better than any one else, sports a modest P/E in the teens.
However, Amazon, as a company, surprises me. At some point in the past, I saw the company as nothing more than a “beefed-up” eBay category. And I was not willing to give the company more than a few years of life. Why not? Because I was looking at Amazon in the present, and assumed the company did nothing more than operate their business, day in and day out….and a business that was going by the way of the dinosaurs at that. A company that sells books in an environment where everything is going digital didn’t seem to have much of a future. But Amazon reinvented itself. And took a page or two from its rivals. Amazon started to offer a trading platform and chipping away at eBay.
It started to offer electronic media and digital readers, chipping away at Apple. And more recently, offering Cloud computing services, eating away at Dell, Microsoft, and other technology providers (even if at a very infinitesimal level).
So, how should we play Amazon? Well, as old wisdom tells us: ‘when in Rome, behave like Romans.’ so should we, when in the Amazon, behave like monkeys. And what I mean by that is, you should put aside the logical explanations of why the stock has nowhere to go but down; you should abandon any perceptions of ‘reasonable valuation’, and if you can forget for a moment all the ‘mathematical’ ratios and models, do so. Instead, look around in the marketplace to see what others are doing. If you see the monkeys cheering and feeding, join the beasts, behave like one, and blend in. When you see them running for the tree tops, get a hold of the first branch you see and climb up the tree. If you stay behind trying to figure out the ‘likelihood’ of being eaten by a bear, you are likely to become bear poop!