I too use Pilot pens (G-TEC-C4) even though the ink flow is sometimes erratic.
Maybe they’re not really Pilot pens - they could be a Chinese knock-off.
Aphalite, yes, our terminology is getting confused. For me there are three margins: Gross margin, Operating margin and Net margin. When talking about low margin businesses I’m referring to Gross margin or small markup. The only way to create good operating margins in this kind of business is to move the inventory really fast. Typically you can’t increase prices to increase Gross margin because you lose customers. The secret is to squeeze suppliers which Dell and Walmart have elevated to an art form. When I said that Amazon has an advantage it is in their marketplace where they don’t buy the goods, they just deliver in the name of the producer. Interestingly, in India Amazon is not allowed to resell merchandise, they can only act as the marketplace which is supposed to protect the Indian producers. In my view this is also good for Amazon since they don’t have to spend money buying goods.
The margin you are talking about is Net margin before taxes, an entirely different animal. The customer does directly care about net margins as they do with markup or Gross margin.
Denny Schlesinger
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At what point do shareholders of a company that has been around for 20 years say, “show me the money”?
shareholders of AMZN that have been around for 20 years are rich because their shares are worth many times what they paid. And their shares are very liquid. I don’t think they are complaining or will be anytime soon.
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I just noticed I misread your comment. I thought you said shareholders that have been around for 20 years, but I see you were just referring to the company being around 20+ years. Sorry for my confusion
At what point do shareholders of a company that has been around for 20 years say, “show me the money”?
Investing in AMZN is like investing in a zero coupon bond (no interest, no earnings). And you don’t know the final face value. Plus the maturity date is most likely 10+ years.
Investing in AMZN is like investing in a zero coupon bond (no interest, no earnings). And you don’t know the final face value. Plus the maturity date is most likely 10+ years.
On the other hand, AMZN is up 14% YTD, and 250% over five years. I believe would make an even more unusual bond than you described.
When something is unique, making comparisons gets really difficult.
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When something is unique, making comparisons gets really difficult.
Exactly and that’s why most analysts are wrong about Amazon.
Denny Schlesinger
…most analysts are wrong about Amazon.
Is this really true?
Marketwatch (http://www.marketwatch.com/investing/stock/AMZN/analystestim…) lists the average recommendation as a BUY, (34 say BUY, 5 say OVERWEIGHT, 5 say HOLD, 0 say UNDERWEIGHT, and 0 say SELL). This is up from 32 BUY just 90 days ago.
The analysts give it a target price of 934.62 (current price is $785.41).
Institutions own 66% of the stock.
Yet, its PE ratio is about 180:1
So, it seems to me that Analysts are still rallying around the stock and overwhelmingly recommending a BUY at today’s prices.
…most analysts are wrong about Amazon.
Is this really true?
Thank you! Maybe I should have said “most value investors are wrong about Amazon.” My point is that you can’t “value” Amazon properly with traditional value metrics many of them designed to value bonds and slow growing businesses.
Take a statement like: “you can’t grow at 20% for ever.” This is a true statement but it does not capture the investment implications. Growth, in nature, has a distinctive pattern, not just in stocks but in all manner of populations like yeast and it’s best represented by the “S” curve. In stocks the driver is market share and the optimal middle section of the “S” curve tends to be between 15 and 85%. In retail there is a maximum number of stores where fast grow stops. Food and drink can support a much larger number of stores than clothing. I don’t yet know how to detect the top of the “S” curve for online sales. But one thing is clear, if you were to do a perfect discounted cash flow analysis for Amazon you would get a single number that does not tell you where on the “S” curve you are.
If you chart AMZN on a semi-log chart
http://softwaretimes.com/pics/amzn-11-01-2016.gif
you can’t detect any sign of the “S” curve, the slope of the price chart is pretty much unchanged since the IPO if you disregard the typical “noise” of the market. Amazon keeps adding markets to it’s initial book market, in and out of retail. I don’t see how to find that top 85% market share which leads me to believe that growth will continue for some time.
Compare that to AAPL
http://softwaretimes.com/pics/aapl-11-01-2016.gif
where you can detect three “S” curves (2003-07, 2009-12, and 2013-14.5) and a general slowing of growth. No wonder AAPL has a low P/E ratio, Mr. Market notices that growth is over (for now).
My point is that typical value analysis tends to be too static to capture the true “on-going business value” of growth companies, at least, fast and unconventional growth.
Denny Schlesinger
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Here is a very, very bullish write up on Amazon as a business, makes for good reading into their strategy:
http://www.ip-capitalpartners.com/report.php?arq=2016_03Tri_…
A little too rah-rah for me but there’s some great points in there. At the end of the day, I still can’t really get over the fact that an investment is about how much cash you can extract from the business, and since Amazon’s brand IS about the lowest costs possible and trying to not ever making a profit, I just don’t see the valuation assigned to it currently as reasonable
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At the end of the day, I still can’t really get over the fact that an investment is about how much cash you can extract from the business, and since Amazon’s brand IS about the lowest costs possible and trying to not ever making a profit,
In my opinion there are three errors in the above assessment:
1.- extracting maximum cash. That’s not necessarily how the business owner sees things.
2.- extracting maximum cash. Bezos is extracting cash by selling shares. He commented that he only sells to fund his rocket business.
3.- trying to not ever making a profit. What Bezos is doing is keeping taxable accounting profit to zero to save money to invest in growing the company. Very few businesses are in a position to do this because you can only do it if he business is growing fast enough to use up all the profits.
I just don’t see the valuation assigned to it currently as reasonable
If you are using traditional valuation metrics you won’t see the value of this very strange way of doing business.
For the longest time I watched Amazon soar and I could not make heads or tails of it and kept away until one day I heard Bezos explaining his business model. Then it made perfect sense. The man is perfectly methodical: there was a reason to start with books, a reason to expand to other consumer items, a reason for AWS, a reason for every step they have taken and it is not mindless empire building that can be so damaging to investment capital.
Dig up Jeff Bezos interviews on YouTube and spend some time learning his business model. It might change your mind like it did mine.
Denny Schlesinger
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In the end it is how much another arm’s length buyer would pay for the company that equals the market cap. Not anymore difficult than that. Walmart would pay more than AMZN’s current marketcapnto take them over.
Future cash flows is not necessarily what the company is doing but what it is capable of doing.
Walmart, as an example, has a policy of 4% margins and no higher. Amazon is similar, except Amazon is growing even larger and more dominant.
Tinker
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