Kindle Fire was Amazon.com’s top seller on Black Friday. For $199, customers get a lot of bang for their buck. Unfortunately for investors its taking two bucks to a buck.
One-Year Chart
AMZN stock has tried to make progress this year, but any gains quickly faded.
Quarterly profit growth (bottom) has been terrible. Negative growth in three of the last four quarters, and each of these last four quarters have been lowered before the company actually reported.
Annual growth also poor. As of this month, AMZN’s expected to bring in half as much profit as it did last year. Most of this is due to the company thinking ahead and investing in the future. Things like building warehouses abroad and selling the new Kindle Fire as a loss leader.
Earnings Table
AMZN’s goal with Fire is to make money by selling more books and retail items on Amazon.com — not to make money on the initial sale of each Fire. That shows in the Earnings Table, where expected 2011 profits just got slashed from $2.00 to $1.21 just in the last three months. Next year and the year after also got cut. Big time — more than a dollar each year.
Overall, this Earnings Table is a sea of red. Negative revisions everywhere. I’m surprised the stock is holding up so well. Investors probably think these long-term initiatives will pay off.
Bottom Line
Kindle Fire is selling like hotcakes but the sales aren’t turning into profits right away. With a P/E of 96 AMZN stock could certainly get cut-in-half next year just to get to Fair Value. Additionally, estimates keep declining and that might cause investors to get bail all at once.
Amazon.com is a great company, but AMZN stock is one I have to stay clear of.
