The long journey to $2,000 has been a story of relentless acquisition and/or demolition of competitors — a tale of epic proportions. For investors in Amazon (NASDAQ:AMZN) stock, they might not care about the company’s history but they can’t ignore the lofty price tag.
Lately, however, the Amazon stock price appears to be taking a breather. Since late August AMZN stock has made no progress. And since there are no dividend distributions, shareholders have essentially been spinning their wheels.
Thus, it is time to drop your Amazon shares (warning: bad puns ahead) like a package on a front porch, or hold on in hopes of a “prime” fiscal delivery?
One Thing’s for Sure: AMZN Stock Isn’t Cheap
Idling for nearly half a year might have frustrated Amazon stockholders, but at least it appears to have deflated AMZN’s price-to-earnings ratio a bit. By the latest count, Amazon stock’s trailing 12-month P/E ratio is “only” 79.16, which is actually pretty tame considering it’s been well over 100 on more than one occasion.
So the bloated beast is a little bit less bloated, but does that make it a buy? I don’t believe so, and sometimes I get the feeling that Amazon is just too big for its own good. When I say big I’m not only referring to the stock price or its P/E ratio; I’m also saying that the company itself is, like the Roman Empire, becoming a tad unwieldy.
I’m sure founder Jeff Bezos is beaming with pride that Amazon will, through the company’s in-house delivery network, deliver an estimated 3.5 billion packages to customers around the globe this year. Moreover, in the U.S. alone, Amazon has 150 U.S. delivery stations with over 90,000 workers.
As impressive as that may be, it leaves me wondering: where do you go from here? Pushing the stock up and out of its multi-month range should require growth, but how much more can a monopoly like Amazon expand? Exponential growth might have enabled shareholders to forgive AMZN’s sky-high valuation, but such a growth pace can only last for so long.
Delivering More Gains?
Or, at least, so it would seem from a logical standpoint. Yet if there’s one thing that the post-financial crisis American stock market has taught me, it’s that logic doesn’t always apply. This is a market that eats until it’s full, and then just keeps on eating; valuations matter little as long as the risk-on “momo” crowd remains in full control.
And if any stock’s been the poster child of post-recession excess, it’s Amazon. The company’s so powerful now that it can practically charge its merchants as much as it pleases with complete impunity. Indeed, the company just announced that it intends to raise the fees charged to merchants by 3% on average next year for storing and shipping their goods.
I’ve heard rumblings that Amazon treats its customers well but its merchants poorly and its warehouse workers even worse. With the U.S. annual inflation rate currently at 2.1%, a 3% fee raise strikes me as burdensome as the company isn’t exactly cash-poor or debt-laden.
This isn’t an ethical objection (not that there would be anything wrong with that) so much as a prospective investor’s reasonable concern. I hate to brand Bezos as a modern-day Nero, but I’m getting the impression that the Amazonian Empire is seeking growth where it shouldn’t and is trying to squeeze more profits from the wrong places — telling signs of a leader that’s out of touch, and out of ideas (or at least good ones).
The Takeaway on Amazon Stock
Alas, bigger isn’t always better, but I suspect that the Bez has yet to learn this lesson the hard way. AMZN stock investors haven’t learned it, either, as the share price hasn’t sustained a substantial loss in a while.
I don’t view the sideways price action as a bad thing necessarily, but I’m not expecting outsized gains in 2020 for Amazon. As for me, I’m content to stand by and watch all those brown delivery trucks go by — no packages for me this holiday season, thank you very much.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
