Amazon’s stock (AMZN) has made all-time highs recently after beating many expectations and on high hopes for the Kindle. (click image for larger size)
Right now AMZN has a P/E ratio of about 70. That seems way too high for a company that has operating margins of only 4.26%. Contrast Amazon with Walmart, a traditional brick and mortar outfit that sells nearly just as much stuff as Amazon and has been building its web presence and is now allowing other people to sell via the Walmart website. Walmart has an current operating margin of 5.65% and a P/E of only 15.
It looks to me that there is a lot of hope built into the stock price of AMZN. I would definitely consider shorting AMZN while going long Walmart. I might have mentioned before shorting an outfit like Nordstrom’s and going long Walmart, but I am now realizing that a -AMZN/+WMT trade might be a better fit as both companies are more similar to each other.
So when might one go short AMZN? That’s a tough question. I bet that AMZN could get up to 150 before not too long. High-flying stocks always seem to fly too high for too long before falling back to earth from the weight of more realistic expectations.
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