Hi Adam,
I guess it depends upon how you judge a strong company.
Amazon is definitely a well known company, but as to whether you are paying far to much for it at any particular time.
From what I read in the Ben Graham book, he takes examples of companies stretching back up to 50 years and compares them with the glamour stocks that everyone wants to own.
Of course that is not to say that something that is expensive will not get even more expensive and you can make money off it by selling as it rises, but if in the long term the price reflects more the value then the you may be in for a long slide down.
MSFT hit a price of $60 back in 2000 and probably had less sales then than it has now but its price has not surpassed that earlier peak.
AMZN appears to have a P/E ratio of 95 so from that you would have to be very very optimistic about their earnings. The people buying it have no idea about value they are purely momentum players.
If the stock were to trade on the same P/E as Microsoft then it price would be about $19.
Microsoft is a mature company with more stable earnings, you would be safer (less at risk of losing money) buying that than Amazon as sooner or later the price has to reflect the earnings.
Would you buy a property and rent it out for a 1% return?
Regards
Neil
AI
