These 3 Charts Tell A Story, Are Investors Listening? Amazon.com, Inc. (AMZN)

A Digital Breakdown

Amazon has gone to great lengths to tout its digital selection, and the popularity of the Kindle lineup. If digital sales are the future of the company, you wouldn’t know it from the last year or so. Take a look at the growth rate of media sales over the last six quarters:

One would expect as more Kindle devices are sold that media sales would pick up, but the opposite has happened. At best, Amazon managed 19% sales growth, and in the most recent quarter sales growth was just 8%.

What Happened To Their Hyper-growth?
If Amazon isn’t going to make a name for itself in media sales, what about general merchandise sales? If Amazon is killing Best Buy Co., Inc. (NYSE:BBY) due to show-rooming, you would expect merchandise sales to stay strong. While general merchandise sales have grown from 60% of total sales, to 63% in the last year, there is no question that growth is slowing.

Six quarters ago, general merchandise sales grew at a 54% clip
. In the last quarter, sales growth slowed to 28%. While 28% growth is nothing to sneeze at, think about this slowdown in concert with the slowdown in media sales and you’ll understand why Amazon reported 22% overall revenue growth.

Every Quarter They Become More Of A Physical Retailer
Each time Amazon commits to building a new multi-million dollar warehouse, I can’t help but think, at what point do all of these expenses pay off? These warehouses increase Amazon’s fixed expenses and require staffing.

In the last year and a half, Amazon’s headcount has increased every quarter by an average of almost 10%.

What’s The Big Deal?
Some investors might be able to ignore all of this and say just wait and see what Amazon can do in the future. I’m suggesting that this isn’t the same fast growth stock it has been in the last few years. Think about it, Amazon is reporting 48% slower growth in merchandise, 58% slower growth in digital sales, and they have 72% more employees than just a year and a half ago.

The big deal is, everyone points to Amazon as the future of retail efficiency and profits. Analysts were surprised by Amazon’s gross margin in the current quarter. I’m not sure why, as their gross margin of 24.13% is still lower than Wal-Mart at 24.94%, and was lower than Amazon’s full year margin of 24.75%. The real model of online efficiency is eBay and their nearly 70% gross margin.

The Bottom Line
Even if Amazon meets analysts targets, shares trade for almost 180 times 2013 projections and 73 times 2014 estimates. Considering the company missed estimates three of the last four quarters, these estimates should be questioned. At 4.39 times their growth rate this year, and even 1.78 times their growth rate next year, the stock carries a significant premium.

Looking at the last year and a half, Amazon’s sales are slowing, their fixed costs are growing, and investors have happily continued buying the shares. Amazon is a great business, but not a great investment at these prices. There is a difference between the two, and I’m afraid some investors are going to learn this lesson the hard way.

The article These 3 Charts Tell A Story, Are Investors Listening? originally appeared on Fool.com and is written by Chad Henage.

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