Amazon.com, Inc. ’s current stock price presumes unsustainable growth because the law of large numbers will finally catch up with the e-commerce giant, Mark Hulbert, editor of the Hulbert Financial Digest, writes in MarketWatch. Investors are eager to jump on to the Amazon bandwagon. More so after initial sales figures from Black Friday and Cyber Monday show online retailers, led by Amazon, grabbing a big chunk from brick and mortar stores. But does the stock at current levels offer growth? Hulbert thinks it does not.
Amazon Can’t Grow to the Sky
To get a better picture of how fast Amazon.com, Inc. must grow to satisfy Street expectations, let’s look at its year-over-year sales growth. Since 2011, Amazon’s annual sales increase has been remarkably consistent. Averaging $13.7 billion a year, it ranges from a low of $13 billion to a high of $14.5 billion.
By contrast, between 2016 and 2019, Wall Street expects Amazon’s sales to grow by an average of $25.9 billion a year – almost double its past 4-year average.
Amazon bulls don’t seem fazed by the enormity of these numbers. After all, a “mere” extrapolation of the firm’s past growth rate would yield these figures. As Amazon gets bigger, the same percentage growth rate would translate to bigger sales.
But that rickety logic falls flat when pitted against the law of large numbers. Amazon would grow big no doubt. But as it does so, it would find it increasingly difficult to maintain its past growth rate. In short, Amazon can’t escape the law of large numbers.
Rivals are Getting Better
Investors also seem to be under-estimating the fact that Amazon.com, Inc. ’s sheer online dominance may shrink with time. As Nejat Seyhun, finance professor at the University of Michigan says, investors are overlooking the force with which retail rival will fight back to deny Amazon as much market share as Wall Street projects.
A decade ago, most of those rival didn’t expect online retailing to take off in such a big way. As such, they were under-prepared for the Amazon storm. But times have changed. So have these retailers.
Amazon will now have to face those very retailers, who are much better prepared to exploit Internet commerce. The days of easy picking are most likely over. The $13.7 annual sales growth was low hanging fruit. Amazon would have to leap much higher if it were to come anywhere close to what Wall Street expects.
Shares of Amazon.com, Inc. closed Monday at $664.80. The stock is the second best performing among those included in the S&P 500, with year to date gains of 117%.
Trusted & Regulated Stock & CFD Brokers
What we like
- 0% Fees on Stocks
- 5000+ Stocks, ETFs and other Markets
- Accepts Paypal Deposits
Min Deposit
$200
Charge per Trade
Zero Commission on real stocks
64 traders signed up today
Visit Now67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Available Assets
- Total Number of Stocks & Shares5000+
- US Stocks
- German Stocks
- UK Stocks
- European
- ETF Stocks
- IPO
- Funds
- Bonds
- Options
- Futures
- CFDs
- Crypto
Charge per Trade
- FTSE 100 Zero Commission
- NASDAQ Zero Commission
- DAX Zero Commission
- Facebook Zero Commission
- Alphabet Zero Commission
- Tesla Zero Commission
- Apple Zero Commission
- Microsoft Zero Commission
Deposit Method
- Wire Transfer
- Credit Cards
- Bank Account
- Paypall
- Skrill
- Neteller
What we like
- Sign up today and get $5 free
- Fractals Available
- Paypal Available
Min Deposit
$0
Charge per Trade
$1 to $9 PCM
Visit Now
Investing in financial markets carries risk, you have the potential to lose your total investment.
Available Assets
- Total Number of Shares999
- US Stocks
- German Stocks
- UK Stocks
- European Stocks
- EFTs
- IPOs
- Funds
- Bonds
- Options
- Futures
- CFDs
- Crypto
Charge per Trade
- FTSE 100 $1 - $9 per month
- NASDAQ $1 - $9 per month
- DAX $1 - $9 per month
- Facebook $1 - $9 per month
- Alphabet $1 - $9 per month
- Telsa $1 - $9 per month
- Apple $1 - $9 per month
- Microsoft $1 - $9 per month
Deposit Method
- Wire Transfer
- Credit Cards
- Bank Account
Share
