Amazon.com, Inc. (AMZN) is one of the most dynamic and intriguing companies of the last quarter-century. Beginning as a humble bookseller, visionary CEO Jeff Bezos saw the opportunity that was e-commerce in the 1990s and seized upon it ferociously.
He hasn’t loosened his grip, and today Amazon is practically analogous with the holiday season and shopping in general.
As for AMZN stock, though … well, it has been a wild ride for investors, who have seen shares whipsaw from extreme high to extreme lows virtually since the stock’s inception.
Amazon.com itself — the business — is a budding empire, plain and simple. AMZN stock, on the other hand, is a disaster.
Here’s why:
Amazon: A Modern-Day Empire
The Bezos business strategy over at Amazon has always been to expand into new and untapped verticals. Sometimes those verticals don’t even look related to its current business model.
After its dominance in e-commerce was apparent, AMZN began expanding its Amazon Prime program and offerings, launching a music service aimed at Apple Inc‘s (AAPL) iTunes and a video-streaming service targeting Netflix, Inc. (NFLX).
Some of Amazon’s more recent and similarly ambitious initiatives:
- The Amazon Echo, a speaker that understands voice commands and uses artificial intelligence technology to serve as a personal assistant and media player. Its integration with the Amazon Cloud Music Player leads me to believe that the emerging Amazon ecosystem is the biggest threat to AAPL stock.
- AMZN is testing a drone delivery service in India, which could serve as a great testing ground for eventual commercial drone delivery in the U.S.
- Today, Amazon acknowledged it was beginning a one-hour delivery service called Prime Now for Prime subscribers in select areas of Manhattan. Amazon will charge $7.99 for delivery within an hour, two-hour delivery will be free, and Amazon Now will roll out in other cities in 2015.
- The Seattle, Washington-based e-commerce giant also launched its own line of diapers to boot.
Amazon’s wildly ambitious undertakings — the company even has its own robotics company for the purpose of streamlining warehouse operations — span diverse industries and have incredible long-term potential. If Rockefeller, Carnegie, and J.P. Morgan were around today and proficient with tech, Bezos would be their modern-day incarnation.
AMZN Stock: A Disaster
AMZN stock, this year, is down more than 25% as Wall Street has gotten sick and tired of the company’s financial performance. The lousy thing about Bezos’s grand ambitions is that they go hand-in-hand with slim profit margins.
Earnings per share for AMZN stock in 2014 are expected to come in pretty low. In fact, AMZN is expected to lose 77 cents per share. Wall Street expects 2015 AMZN EPS to be 90 cents per share, meaning that even after its 25% decline this year, shares trade at about a 325 forward price-to-earnings ratio.
Usually I believe that great businesses and great stocks go hand-in-hand. But in the short- and medium-term time horizon, AMZN stock is unlikely to reward current investors at these levels, despite the projected $105 billion in revenue Amazon is expected to log in 2015.
Ironically, Amazon stock, which is priced like a growth stock, is best suited for a patient investor with a long view.
John Divine is assistant editor of InvestorPlace.com. As of this writing, he held no positions in any of the aforementioned stocks. You can follow him on Twitter at @divinebizkid.
