Ok, while I am waiting for AMAT to open its mouth, I did my evaluation method for AMZN. Since this is a mostly "concept" stock, then if you believe in the company, you have to give them the time to develop their idea. As such, I am evaluating them for the time horizon of 2~2.5 years, which is the high end of my investment horizon and I do not believe anyone should discount a longer time span when making an investment.
At its core, AMZN is a retailer, or if you will, a speciality retailer. The retail industry has had long term sales growth rate of 14.6% and the speciality retailers have had one of 19%. It stands to reason that Amazon's revenue growth rate will come down to these levels in about 5 years. Since they are expected to grow their revenue by 60% this year, I am estimating that they will grow their revenue something like (1999:60%, 2000:50%, 2001:40%, 2002:30%, 2003:20%). So AMZN will have revenues of $2.94B in 2001 and will be growing them by 30% in the following year.
The operating margins for the retail sector are 5.48%. Given Amazon's "new economy" business model, I grant them operating margins of 10% (which is very very rich). BTW, I got the 10% number from looking at the average margins for the service sector, which is what the retailers are part of.
Now the most richly valued major retailer that I could find, speciality or otherwise, is Wall Mart. WMT has operating margins of 5.26% (again showing how generous I was to award AMZN OM of 10%) and has been growing its revenue by about 16%. WMT trades at P/S of 1.44.
So the magic number for WMT is
WMT --> 1.44 / (5.26*16) * 100 = 1.71
So we use this number to solve for Amazon:
PSR/ (10*30) * 100 = 1.71 Therefore AMZN's PSR = 5.13
Since AMZN will have revenues of $2.94B as calculated above, then it's market cap in 2001 will be 5.31 * 2.94 = $15.1B
Which is substantially below the current $23 Billion.
There, You now know how Sun Tzu evaluates his investments! The magic is gone.
Sun "I showed you mine, now you show me yours <VBG>" Tzu |
