Will Amazon.com, Inc. (NASDAQ: AMZN) Become the First $1 Trillion Company?
Amazon.com, Inc. (NASDAQ: AMZN) continues to defy common stock valuation methods as its stock price is currently up 50% and trades at a P/E ratio of 297.63. Amazon.com is richly valued in comparison to other technology companies, which has raised conflicting predictions on its future price projections from analysts and investors alike.
Amazon.com is currently trading at a rich valuation with a high P/E ratio.
The company continues to rally higher at the expense of physical retailers.
The increasing popularity of its private label products is likely to fuel its rally to $1 trillion.
The e-commerce giant continues to redefine the retail landscape in the United States just like Wal-Mart did in the 1990s by driving other smaller retailers out of business with its low prices. Amazon.com represents the changing nature of global retail as more shoppers prefer to shop online from the comfort of their homes as opposed to visiting malls and big-box stores.
Given that Amazon’s high P/E ratio might not make sense on traditional company valuation models such as the DCF model, investors who choose to purchase the company’s stock must believe in the company’s vision. This means that its shareholders are likely to believe that the e-commerce giant shall remain disruptive to most segments of the retail industry as evidenced by its recent acquisition of Whole Foods Market.
A major concern among most investors regarding Amazon.com is the fact that the retail industry is characterized by tiny profit margins, which has proven quite challenging to Amazon’s profitability. However, the company is addressing this issue by launching its own private label products in high margin retail segments such as consumer electronics as well as clothing and accessories.
The company has also created partnerships with some well-established clothing and Apparel companies such as Nike Inc (NYSE: NKE) and Calvin Klein to carry their merchandise on its platform. These deals will keep coming as more consumer-focused companies follow customers who prefer to shop on Amazon.com.
Amazon is focused on growing its private label brands in an increasing commoditized retail landscape where more consumers are choosing to buy private label products, which indicates significant growth potential for the retailer in this segment. Amazon’s Prime offering is also another major contributor to the company’s future growth prospects even as it creates new ways of convincing its prime customers to spend more.
Most investors who do not believe in Amazon’s vision are likely to steer away from the company, while those who have faith in the company’s future will continue pushing the company’s stock price higher, maybe even up to a $1 trillion market cap.
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