OFF THE WALL: Holiday thoughts on Amazon: to dump or not to dump

By Rene Pastor

Every time I think I should dump the very small amount of Amazon stock I own, the holidays sort of knock me back to reality.

I am not a big fan of going to a mall and getting trampled or shoved in the mad rush to buy that $150-flat screen or whatever macho gadget is being advertised for deep discounts.

I prefer to go online and buy there. The best site to do that is of course Amazon. What’s not to love about the big A? From midnight on Sunday (December 1), Amazon will open its deals store where bargains would come in at the rate of about once every 10 minutes. Plus, there’s free shipping.

Black Friday, the day for manic shopping in the U.S., is close to being overrun by Cyber Monday as the premier shopping day of the nation. Leading the charge is Amazon.

In the stock market, Amazon is a bit of a battleground stock because of its numbers.

The price/earnings ratio, a metric that most investors believe should be between 15 and 20 or even 25 at the most, is a stratospheric 1,300 for Amazon. The price of Amazon is closing in on $400 per share.

Despite the daunting P/E, that did not stop Credit Suisse from saying last month it was increasing its price target for Amazon stock to $439 mainly because of the ability of Amazon to execute.

S&P recommended Amazon as a hold, but its review of Amazon sounds more like an argument to buy the company.

“Amazon continues to demonstrate the strength and worldwide potential of its business model, in our view,” S&P said in a report dated November 23. Amazon continued to pour money into “investments in long-term growth opportunities such as AmazonWeb Services, hardware such as the Kindle and Kindle Fire tablet offerings and increased digital content should provide new sources of revenue over the next few years,” the research firm said.

“Longer term, we expect AMZN’s initiatives to result in continued strong sales results and significant margin expansion, as it leverages its leading brand name and position as an Internet retailer. We consider AMZN a best-in-class retailer that we expect to generate significant free cash flow,” S&P concluded.

Ford Equity Research, on the other hand, said in a report on November 22 that it rates Amazon a sell, saying among others that the stock is overvalued and stated the stock will “underperform” the market over the next year.

By all rights and on the numbers, I should be looking to get out of my Amazon position. I bought Amazon under $300 and it is now almost $100 later and I have a small tidy profit in the stock.

But every time I think of dumping Amazon though, some holiday rolls around and I get reminded forcefully why the company is a good investment no matter what your position is.

The dilemma goes something like this: Would you want to sell Amazon just in case it runs up to over $400 or even $500 per share?

At the start of the 2013 holiday season, I am again sitting on my hands looking at my small, almost niggardly amount of Amazon stock.

On Friday, morning the stock is trading at $390 and when you see the chart of its movement, Amazon looks like a spear pointing to ever higher levels with seemingly no top in sight.

Sometimes, you hang onto a stock for no other good reason than a gut feeling. That’s how Amazon looks for this small investor. The numbers look horrid, profits are small and the competition is increasing. But it looks cutting-edge and you feel Amazon is going to conquer the retail world.

My wife has a simple formula. “If your stock is doing well, why sell?”

‘Off the Wall’ is a weekly column on the stock market. The comments expressed here are the author’s personal views and are not meant to recommend the buying or selling of stocks.

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