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Technology Stocks : Internet Analysis - Discussion

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To: jbn3 who wrote (252)	3/29/1999 6:29:00 PM
From: Chuzzlewit	Read Replies (1) of 419

Bachman, you laugh, but it almost appears this way. I didn't have any basis for inclusion of AMZN's auction site in my analysis -- I have no idea at this point what they will do to the numbers, but here is a really odd methodology that Everen uses to value AMZN. They forecast earnings of $1.77 per share for 2003 and assume a forward P/E of 80 (on what basis I don't know), yielding a price in 2002 of $141.60. They then discount this price back to the present using an opportunity cost of 5.15% plus a risk factor of 0.5%!!!! so you calculate this stuff out and voila! a valuation of $120/share 6 months hence. But that would mean that if the target price were achieved the rate of return to the investor starting 6 months from now through the end of 2002 would be 5.65%. Who in his right mind would invest in a stock like AMZN with a potential return limited to 5.65%? These guys also have a buy rating. Oh, and they have an 18 month price target of $127! Web retailing is fraught with risk, not the least of which is the fact that it is so new that the unknowns are monumental. Furthermore, barriers to entry are either minimal or non-existent, and branding may be an illusion. So even if I were to accept the $1.77 estimate, I'd be slapping a 30% or so total discount rate on this thing. That gives me a target price of $63.72 assuming their numbers. But the stuff I've generated (excluding the effect of the auction) yields only losses. I give up. Maybe there's something in the paper they use that makes them all hallucinate, or maybe this is surrealist living art. Or maybe I'm just out of step. Maybe this makes sense if you're 25 years old, just out of B school and never saw a fad before. TTFN, CTC

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