AMAZON.COM'S FLOWERING STOCK SUCCESS SET TO WILT?Byline: Jay Greene Jay Greene is a retired NASA engineer. He worked as a flight controller during the Apollo Program and was a flight director from 1982 to 1986, most notably serving as ascent flight director at the time of the Challenger accident in 1986. The Seattle Times Some investors think Tulip.com might be a better name for high-flying Amazon.com these days. The online retailer's stock price has quadrupled in the past four months, prompting comparisons to Tulipmania, the notorious buying frenzy of 1634, when Dutch speculators pushed the price of tulip bulbs into the stratosphere stratosphere (străt`əsfēr), second lowest layer of the earth's atmosphere. The level from which it extends outward varies with latitude; it begins c.5 1-2 mi (9 km) above the poles, c.6 or 7 mi (c. , only to see them crash just as quickly back to earth. ``The investors in Amazon.com will make the tulip investors of the 17th century look like value investors,'' said Rick Berry
Rick Berry (born on 4 November, 1978 in Birtle, Manitoba) is a Canadian ice hockey defenseman who currently plays in the New York , a stock analyst with J.P. Turner & Co. in Atlanta. He recommends that Amazon.com investors sell now. Whether or not Amazon.com stock is worth its current value, investors have gone on a buying frenzy in recent weeks. Amazon.com, which started trading at $9 in May 1997, eclipsed the $100-a-share-mark in October only to catapult catapult (kăt`əpŭlt'), mechanism used to throw missiles in ancient and medieval warfare. At first, catapults were specifically designed to shoot spears or other missiles at a low trajectory (see bow and arrow). past $200 a share a month later. On Dec. 21, the company cracked the $300 barrier. It has since split 3-for-1, meaning Friday's close would have been $421.125 last month. As Amazon.com's price has blazed past investing mileposts, opinions about the company have become more polarized A one-way direction of a signal or the molecules within a material pointing in one direction. . Investors and analysts either think the company is wildly overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a or a tremendous bargain given its long-term potential. The reason for the wide divergence of opinion is no one is quite sure how to value the company. Amazon.com is the leading retailing brand name on the World Wide Web, selling books, music and videos. At the same time, the company has yet to earn a penny. Even though analysts expect company sales to top $500 million this year, they estimate that Amazon.com loses an average of $4 to $7 per book ordered. To some stock analysts, that's a formula that seems to guarantee continued gallons of red ink red ink Health administration A popular term for financial losses. Cf in the Black. . J.P. Turner's Berry said the math simply doesn't add up to a company valued at more than $25 billion, larger than such established retail giants as Sears and Costco. ``All manias will end,'' Berry said. ``This one is lasting a little longer than usual.'' Of course, that's easy for Berry to say. He suggested clients sell the stock in July when it was trading near $125 a share. Amazon.com has more than doubled since then. At the other end of the spectrum are analysts such as Henry Blodget Henry Blodget (born 1966) is a former securities analyst who was senior Internet analyst for Merrill Lynch during the dot-com bubble. Blodget received a Bachelor of Arts degree from Yale University and began his career as a freelance journalist and was a proofreader for of CIBC CIBC Canadian Imperial Bank of Commerce CIBC Centres Interinstitutionnels de Bilan de Compétences CIBC Commonwealth Institute of Biological Control (Trinidad) CIBC Commercial International Brokerage Company Oppenheimer in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . Last month, he told clients Amazon.com would trade at $400 within 12 months, a prediction that sparked a one-day, $50-a-share rally. Blodget believes Amazon.com eventually will be a company worth a high stock price as it becomes an even more dominant online retailer, selling music, toys and other items. ``Because there is so much money to be made in the Internet space, you have to be willing to bet on these companies before the business model has been proven,'' Blodget said. Amazon.com's stock, though, will be ``wildly volatile'' as it approaches $400, perhaps even losing half its current value along the way, he said. No one is quite sure who is buying Amazon.com shares as they climb higher and higher. The company's shares are trading at a lofty 97.4 times sales, while the company it is often compared with, Wal-Mart, trades at 1.6 times sales. A ratio that high generally rules out big institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. , such as pension funds and insurance companies, whose bylaws The rules and regulations enacted by an association or a corporation to provide a framework for its operation and management. Bylaws may specify the qualifications, rights, and liabilities of membership, and the powers, duties, and grounds for the dissolution of an often preclude investing in companies so richly valued. Individual investors, on the other hand, need significant sums of cash to play the Amazon.com stock game. The average size of a sale is roughly $110,000. ``That's clearly not an individual investor buying for his 401(k),'' said Steve Weinstein of Pacific Crest Securities in Portland, Ore. The buyers are more likely to include wealthy ``day'' traders, speculators who buy big blocks of the stock and sell them for modest gains within a day or two. Buyers also may include a handful of mutual-fund money managers looking to pick up a hot stock to make their portfolios look better, and some wealthy individual buyers trying to jump on a fast-moving train before it rockets by them. One of Amazon.com's largest investors, Transamerica's Premier mutual funds, won't say if it is buying. But Philip Treick, who manages Transamerica Premier Aggressive Growth Fund and Transamerica Premier Small Company Fund, said he isn't selling. That means Treick is willing to bet Amazon.com will blossom into an online retailing giant. So far, it's been a good bet. Treick's two funds rank among the best performing in the country this year with returns approaching 70 percent. Their success has come largely from the eye-popping performance of Amazon.com. Transamerica's nearly 1 million Amazon.com shares, acquired at an average of less than $50 a share, are its largest holding. Ryan Jacob is a bit more sanguine sanguine /san·guine/ (sang´gwin) 1. plethoric. 2. ardent or hopeful. san·guine adj. 1. Of a healthy, reddish color; ruddy. 2. . Jacob manages The Internet Fund, another mutual fund, which has posted a 216 percent return this year by focusing solely on the stock of online companies. Amazon.com had been a larger part of his portfolio than it is now. While he likes the company, Jacob gets nervous at such lofty prices. ``I don't think it's such a tremendous value right now,'' Jacob said. ``Amazon's price is reflective of very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op forecasts.'' |
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