Five years ago, Amazon (AMZN) closed at $171. It recently traded at $594. That is a pretty spectacular five year return – just over 28% annualized. Returns have been delivered by the stock. And performance has been delivered by the company. Sales per share have grown from $76 per share in 2010 to $227 per share expected for 2015. Cash Earnings per share [Estimated as Earnings Plus Depreciation, Amortization and Non-Cash Charges] has grown from $3.8 in 2010 to $12 expected for 2015. What’s to worry about? The shares have delivered spectacular returns, but the company has delivered an equally spectacular performance, so everything must be all right. But much as I like Amazon, I cannot get comfortable with Amazon at present levels. 

Numbers don’t tell you what to do. But they do guide you towards doing additional research to help you decide what you ought to do. Perhaps for me it’s the seasonal thing: Amazon has run ahead of itself driven by seasonal tailwinds, and now with headwinds ahead, it might suffer going ahead.  Perhaps it’s something as simple as finding a market capitalization of $280 billion too much to swallow, particularly given that Walmart has a market capitalization of $205 billion, despite sales being manifold over Amazon’s – yes growth potential matters, and it makes all the difference, but is that enough. 

Amazon will be reporting results on 28^th January, 2016. And with the shareholder response to earnings being traditionally strong, there is reason to be nervous. I’ll leave you to determine whether the risk is reflected in the price, or whether there is more pain to come.

Here are some interesting data points:

Valuation