Amazon.com, Inc. (NASDAQ:AMZN) has dominated the headlines as its decision looms on where the company will establish its second headquarters. The so-called HQ2 search has honed in on Toronto and 19 American cities, mostly in the Eastern time zone. Amid growth, investors must now decide whether HQ2 will ramp up AMZN stock to the next level or form the basis of a selloff.

Brick-And-Mortar Drives AMZN Growth

Dozens of cities offered large tax incentives to lure 50,000 of Amazon’s future office employees to their city. And many of these choices offer to give Amazon a more substantial physical presence in popular, lucrative markets.

Atlanta stands at the opposite corner of the country from Seattle. The Georgia capitol offers an extensive logistics for rail, highway, and air transport. Washington, DC would tie AMZN closer to Jeff Bezos’s ownership of the Washington Post. It would also establish a stronger ties to the nation’s political leadership.

All cities still in the running offer perks that will benefit Amazon in some form. But how AMZN stock benefits will depend on the choice. And no matter the choice, Amazon’s future still depends on the same attributes driving the stock price of other companies — growth and valuation.

AMZN’s growth challenge remains how to manage its growth, rather than the growth itself. The company now enjoys one of the largest market capitalizations in American business. Most analysts predict that market cap will grow as Amazon remains on track to increase profits by at least 75% in each of the next three years.

Much of Amazon’s growth has been driven by moves into brick-and-mortar retail. A purchase of Whole Foods Market in 2017 sent shock waves across the grocery industry. Moreover, an alliance with Kohl’s Corporation (NYSE:KSS) as well as rumors the company will buy Target Corporation (NYSE:TGT) has also generated headlines. These moves have and will continue to generate higher profits.

Valuations Loom Large for AMZN Stock

However, until profits catch up to the stock price, AMZN stock faces another looming problem — valuation. Profit growth may not justify the stock trading at 330 times earnings. I mentioned in a previous article that Amazon stock would trade under $100 per share if the company matched the price-to-earnings (PE) ratio of Wal-Mart Stores Inc (NYSE:WMT). I do not predict that level of decline.

Still, bringing the price-to-earnings-to-growth (PEG) ratio to the S&P 500 average of 1.33 would place the stock price at around $1,000 per share, or 122 times earnings. Amazon’s current forward PE stands at over 142. At around $1,300 per share, the stock appears to have moved ahead of its future valuation by at least 30%. The stock also remains a high-risk play at these multiples. Should profit forecasts come down, AMZN stock could experience large, downward moves.

AMZN’s Growing Pains

My previous article on the e-commerce giant also highlighted the growing pains Amazon has experienced. For this reason, I proposed that Amazon was becoming the new Walmart. Like Walmart, Amazon faces allegations of harsh working conditions and poor­ customer service.

To be sure, perceptions change very slowly. Despite some negative publicity, Fortune magazine proclaimed Amazon as the second most admired company, behind only Apple Inc. (NASDAQ:AAPL). However, customer complaints will likely continue. Also, if shows such as 60 Minutes or Dateline NBC produce programs showcasing disgruntled Amazon employees, the company, and by extension AMZN stock, could face troubles.

I also brought up this comparison because many felt Walmart was taking over retail back in the 1990s, much like some allege Amazon dominates retail today. A brisk Christmas retail season for the likes of Costco Wholesale Corporation (NASDAQ:COST), Macy’s Inc (NYSE:M), and Kohl’s tempered that feeling. However, Amazon’s presence still looms large over retail.

Bottom Line on AMZN

Amazon’s remains a high-growth company. Headlines about HQ2 and its future growth inspire fear and awe among both investors and consumers. A leadership presence in a new city will widen the company’s influence. Also, its move into physical stores validates both itself and in-store retailing as a continuing presence in the market.

AMZN will likely remain in a high-growth mode for many years to come. However, current valuations price AMZN stock for perfection, and imperfections have begun emerging. Given the increased risk of owning AMZN stock, investors are likely better served seeking gains in lower-risk equities.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.