Valuation Got Amazon Wrong

In this video, I’ll explore the rise of Amazon.com over the past 20 years, and offer it as evidence that stock market valuation measures can’t be trusted.

Amazon.com went public on the Nasdaq on May 15, 1997 at a value of $438M. Today it’s worth $460B (May 2017).

Look at the chart from Recode, showing the price of Amazon’s stock rising 600 fold over 20 years.

Two years ago, its value surpassed Wal-Mart’s:

It has kept its revenue climbing, and used almost all of it to reinvest in new projects rather than dropping it to the bottom line of profit.

It now commands a 33% share of the US e-commerce market.

An unequivocal success. Did you invest in it along the way? Many didn’t. Why? Overvaluation.

Amazon’s current trailing price/earnings ratio is 180. Microsoft’s is 30. Wal-Mart’s is 17. For most stocks, most investors consider 20 to be expensive and 30 to be nosebleed. What to make of 180?

It’s been a lot higher, too, as the chart from Zacks shows. Over 2,000 in 2013.

Keep the Amazon example in mind whenever somebody talks about a stock or the market being overvalued.

Says who? By what measure? Maybe the measure shows overvaluation, but the stock or market can keep rising.


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Thank you for watching!

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