Amazon is a global online retailer and the market leader in cloud computing platform services. Analysts and investors have high expectations for the company, and these expectations may be justified by the company's topline growth, brand strength, and success expanding to adjacent categories. Nonetheless, AMZN share valuation assumes rapid and sustained income improvement. These improvements are potentially attainable, but they rely on specific qualitative performance assumptions projected a number of years into the future. This is a clear case of speculation, and a long position would violate most of the principles upon which value investors base their decisions.
Amazon
is targeting key growth markets; it’s the leader in cloud infrastructure
market. Gartner placed AWS as the leader in its magic quadrant for
infrastructure as a service with Microsoft a distant second. Overall, increase
in data storage needs will help the growth story of AWS going forward. The
company is also exposed to the growth of e-commerce and content streaming.
Despite
Amazon’s attractive business positioning, there are several alarming factors. Valuation
is extremely rich; the stock trades at a forward PE of 161. This is not an
acceptable level as earnings are expected to grow at just 35%. Further, revenue
growth is following a declining trend. Revenue from North America grew 25%
during 2014 as compared to 28% and 30% growth in 2013 and 2012 respectively.
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