Wednesday, July 26, 2006

Amazon, A Scary Drop!

Shares of Amazon plunged over 20% today as it announced a 58% profit decline. This is equivalent to a loss of about $2.8B in market value in less than 24 hours. Amazon share is currently trading at 3 years low.

So, does this come as a surprise?
No. Not for me at least.

From a quick glance from Yahoo, Amazon is overvalued. Most value investors would avoid Amazon, except for Bill Miller.

Market Cap (intraday): 11.08B
Enterprise Value (26-Jul-06)3: 13.96B
Trailing P/E (ttm, intraday): 34.07
Forward P/E (fye 31-Dec-07) 1: 31.56
PEG Ratio (5 yr expected): 3.02
Price/Book (mrq): 43.23
Enterprise Value/EBITDA (ttm)3: 23.777

Is it a good buy now after this "myocardial infarction-inducing" drop?
No, not in my opinion. It is still richly valued. The share has to slide further to entice me.

Is Amazon a Good Company?
Yes, without doubt, Amazon is a great company. I buy all my books from Amazon. Not only does Amazon sell cheaper books, but it offers free delivery too! Amazon has never disappointed me since I started using its service more than 5 years ago. Even Warren Buffett buys books from Amazon!

ROA (ttm): 10.39%
ROE (ttm): 409.88%

Warren Buffett said, “It is more important to say "no" to an opportunity, than to say "yes"."

Happy investing,
Dah Hui Lau (David)

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