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Is Amazon cheap?

Amazon PrimeAir drone delivery vehicle

Amazon’s share price has fallen 12% from the $2011 peak in the summer. True, that means it is still trading on more than 80 times forward earnings, but is that valuation justified by the growth? Considering this company has revolutionised online retail and looks set to continue to facilitate massive changes in consumer behaviour, could it be regarded as cheap?

It is nearly impossible to find a traditional metric which justifies Amazon’s (US: AMZN) valuation.

At $1767 each, the shares trade on 85 times consensus forecast earnings per share (EPS) for 2019 and 64 times 2020 forecasts. True, group EPS has risen at a compound annual rate of 101% since the company first reported net profits in 2015 – a pace of growth that warrants a lofty earnings rating – but that growth slowed to just 16% in the third quarter of 2019 and annual numbers are expected to be flat on last year.

Profits aren’t Amazon’s strongest suit, but the…

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