Bubble alert: Amazon over-inflated?

Facebook isn’t the only company to be raising questions (in my mind at least) about some of the valuations that are out there. It wasn’t until I looked at Amazon’s stock chart that I realized the shares closed above $100 on Tuesday — touching a level they haven’t seen since the latter days of the tech bubble in 2000, just as things were about to pop. Not long after they hit that price, they began a free-fall that didn’t stop until they got below $20.

blowing-bubbles1.jpgMaybe that’s part of the reason why Amazon’s shares slumped on Wednesday, despite a strong quarter in which profit more than quadrupled and revenue rose by more than 40 per cent. Amazon’s business has grown substantially since 2000, and there’s no question that the company has had a good year — but the share price has more than doubled in the past six months and tripled in the past year. And if you look at some of the stats, the shares are trading at some eye-popping multiples.

For example, the online retailer’s stock is selling at 122 times “trailing” earnings (profit over the past 12-month period) and more than 60 times projected profit for next year. And Google? The Web giant is selling for just 52 times its trailing profit and 32 times projected profit for next year. Amazon’s stock price is 75 times its equity per share or “book value.” Google? 10 times.

Apparently unfazed by any of this — including the fact that Amazon’s operating-profit margins are just 4 per cent, compared with Google’s 32 per cent — several analysts have boosted their price targets for the shares. Banc of America jacked up its target to $115, just two weeks after raising it to $105 from $90. If you listen closely, you can hear the sound of air being pumped into something.