zax:
actually the rest of that article is even more damning, see previous post for the link
1. meeker's comments were made when the stock was at $99/share. you do the math bulls, she's more comfy at $30 cheaper (aka $65-70 range).
2. uber bull benjamin's $44 price target has some assumptions built in -- read them and then if you can justify them, ok that's $44 share (and we can spend all day laughing about the nirvana like conditions required for his scenario to play out -- assuming that earnings should trade ata 50 PE!!!). btw, bulls if you want to make a bullish case, rather than just spout off about how great the company, please please do what benjamin does and clearly state your assumptions -- it helps all of us have a reasoned debate.
3. Did you notice that not a single analyst/fund manager sited recommended buying amzn. Hmmm, maybe they know something.
short term, i'm as ignorant as the next person, longer term ... don't look pretty.
LP
Let's take Amazon.com (AMZN), that pioneer of e-commerce. It has
recently experienced a 236% runup in its stock. How would traditional
research -- like examining its price/earnings ratio -- value this company? Well,
Amazon.com trades at around $99, a lofty price for a company expected to
lose $1.15 a share in its 1998 fiscal year and 61 cents in 1999. But P/E is an
unfairly rigid measure of such a young company's potential, you say, so let's try
price-to-sales (Amazon.com's is a stratospheric 24.5, compared with other
booksellers' ratios of 1) or price-to-book value (182) or even price-to-cash
(the company doesn't have any cash, but it does carry a debt/capital ratio of
79.5).
Okay. Let's cast aside these traditional -- some might say moribund --
measures and try to value these Internet stocks the way the experts do. Take,
for instance, Morgan Stanley's Mary Meeker, probably the sector's most
influential analyst right now. Meeker generally values a company based on
revenue minus expenses projected out to the year 2001. With those numbers,
she runs a series of complex calculations that determine at what level a stock
should be trading. Based on that analysis, Meeker has been bullish on
Amazon.com of late, but now says, "I felt a lot more comfortable talking about
Amazon a few months ago" -- when it was 30 points lower.
Then there is Keith Benjamin, who puts a different methodology to work at
the San Francisco brokerage firm BancAmerica Robertson Stephens. He
looks principally at how many people are turning to the given business and
how that feeds into earnings. With Amazon.com he estimates that more than 8
million people will be using the site by the year 2001, contributing to revenue
of $120 per user and net income of over $7 per user. Taking these figures, he
then projects an earnings number for the year 2001, discounting expected
expenses. Assuming that earnings should trade at a multiple of 50, he then
comes up with a current price target based on those numbers. Given all this,
he figures, Amazon.com should be trading at 44 -- 52% lower than its current
price. And then, of course, there is the very real possibility that this bookselling
phenomenon is just a sitting duck, with Barnes & Noble (BKS) -- a
company with 1,011 stores, $2.8 billion in revenue and 27 years of success
under Chairman Leonard Riggio -- vowing to blow Amazon.com off the Net
one day soon.
With risks like these on the Internet, is it any wonder that Warren Buffett just
bought an insurance company?
Making Rational Choices
Buffett may be steering clear of the Internet right now, but plenty of mutual
fund managers have been diving right in. Legg Mason's William Miller is
buying America Online (AOL) -- a stock recently trading at 106 times 1999
earnings. So is Mike DiCarlo at John Hancock Special Equities (JHNSX),
Warren Lammert at Janus Mercury (JAMRX) and Jim McCall at PBHG
Large Cap Growth (PBHLX). Meanwhile, Gus Sauter, the index-fund
maven at Vanguard, is buying Yahoo!
But these fund managers all have good reason to buy these kinds of stocks, no
matter how overvalued they may seem to the rest of us. For managers in an
increasingly competitive fund world, it's almost worse to miss out on buying
the "next great stock" than to have gambled and lost. Their shareholders are
typically willing to let them take these kinds of risks because the ultimate
payout could be so great.
And we agree. But what works for a fund manager may not work for you.
Yes, there is money to be made on the Internet by individual investors. Yes,
many of these stocks look tempting. But if you are going to gamble on this
sector, we think the best course to follow is one that lets you work the odds in
your favor.
How to do that? Well, we believe there are three strategies worth pursuing in
the Internet sector:
1.Buy a front-runner that still looks good on a valuation basis.
2.Buy a beaten-down company with upside potential.
3.Buy an undiscovered stock.
Can you find such stocks right now? We took a close look at more than four
dozen Internet companies in four broad areas -- software, infrastructure, the
media and e-commerce -- and came up with four picks that look promising to
us, including one that somewhat stretches the definition of an Internet stock
and yet seems uniquely poised to benefit from the continuing growth of
cyberspace.
-- By Tiernan Ray and Nellie S. Huang and David B. Lipschultz |
