Standpoint Research Maintains Sell On Amazon.com (AMZN), Questions Valuation

November 19, 2009 11:07 AM EST

Standpoint Research maintained their Sell rating on Amazon.com (Nasdaq: AMZN) but raised their price target from $75 to $85. The firm said the multiple the stock trades at is simply unjustifiable.

"Maintaining SELL recommendation on AMZN, raising price target from $75 to $84 … 28X $3.00 in earnings potential for 2011 … in our opinion a company of this size and maturity should not be trading at 51X consensus estimates for 2010 and more than 40X the highest estimate. The REAL unemployment rate, including misplaced and part-time workers, has doubled in the last year to nearly 16% (and we don’t see that coming down significantly before 2011 at best). Credit card use will be down this holiday season and that will impact online spending at AMZN, as will confidence levels, competition from other retailers such as WMT, elevated commodities prices and other well-documented issues. In our opinion, price targets for AMZN of > $150 are misguided -- margin improvement and improved execution notwithstanding. In order to justify a $150+ share price (or even the current share price), AMZN needs to deliver at least $4.00 EPS. EPS trailing three years were just $1.12, $1.50 and $1.88 respectively. EPS may not top $3.00 before 2012. In our opinion, consensus growth rates for AMZN are unreasonable … y/y percentage increases in the number of accounts (of active customers), now at > 100,000,000 and at a mature level, will moderate. The shares have an unfavorable risk-reward with a P/E ratio more than 2X optimistic growth rate forecasts (and 2.5X a reasonable forecast). The shares are over-valued on an absolute and relative basis, and now trade at 2.6X revenues near the upper end of the 1X-3X range it has traded at for most of the last five years."

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