The biggest plus for Amazon is probably their CEO, Jeff Bezos. He manages expectations better than most, and has quietly become one of the most respected CEOs around. For more than a decade he has sold the idea of a long term business model. Investors seem to be ok with seeing flashes of profitability while he builds the company. Apple’s shareholders bought in to this concept long ago, and until recently it drove the company’s stock. However, Apple just released its best quarter results ever, and the stock has deflated.
The scariest thing for investors owning Amazon is time. People invest with a timeline of when to get their money back with a return. The company is probably the greatest in the world in the retail industry for pricing and convenience. When a company becomes a low cost provider raising prices becomes very difficult. With sales taxes catching up to Amazon, raising capital becomes Amazon’s largest threat.
For bargain investors, Apple, Google, and Amazon’s FCF yields are 10.7%, 8.9%, and .9% respectively. Amazon’s lack of free cash flow and profitability are shown in that figure. Both Apple and Google seem to be fairly cheap, though Apple edges Google out.
The Foolish Conclusion…
At some point Amazon has to become more profitable. It’s stock continues to rise, setting new all-time highs, but the company still struggles to show any profit. Apple has done just the opposite. Continually the company shows large profits and yet its stock decreases. Google falls in the middle land of the two. Amazon baffles me because of its outstanding market share and business model, but its poor performance of profitability. What is Amazon trying to do besides become enormous? Time shall tell.
The article Love, Hate, And Love To Hate: The Truth Behind It All originally appeared on Fool.com and is written by Tyler Wofford.
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