Amazon had an absolutely amazing end of the week last week after the company surprised Wall Street analysts with their earnings report for the second quarter. Amazon's market cap now even exceeds the next largest retailer, Wal-Mart (WMT). Today, we'll take a look at the earnings, what happened after the report, and discuss what I consider to be the beginning of the Amazon bubble. So, let's get right to it…
Amazon's Earnings Report Details
As mentioned above, Amazon released its earnings report for the second quarter last week; and the report was overwhelmingly positive. Here are the details we saw from the report….
As you can see from the data above, the report was overwhelmingly positive. As a result, we saw massive gains in the stock…
Amazon's Market Capitalization Soars
As a result of the overwhelmingly positive earnings release, Amazon's stock soared; leading to a massive growth in market capitalization. After the stock climbed by about 10% on Friday, the company's market capitalization is now about $250 billion; outpacing Wal-Mart at $230 billion and proving to be worth about five times as much as target. The climb was so big that the company's CEO, Jeff Bezos, realized an increase in net worth of $7 billion on the day the report was released.
Is Amazon Turning Into A Bubble?
Don't get me wrong, I'm all for positive reactions to positive earnings. After all, positive earnings are what investors are looking for. However, in this particular case, I think that we may be looking at the start of an asset bubble. The reason I say that all boils down to the company's price to earnings ratio. The P/E ratio compares the price of shares to the estimated earnings for the company throughout the fiscal year. In general, a good price to earnings ratio is somewhere between 15 and 17. However, when it comes to Amazon, the company's price to earnings ratio is incredibly exorbitant. As a matter of fact, according to Nasday, Amazon's price to earnings ratio for 2015 is over 984. For 2016, that figure is estimated at 175.98. This is one of the highest PE ratios I've ever seen and insinuates that the stock is incredibly overvalued, which leads us to the next big question…
