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The Equitymaster Research Digest

The Worst Types of Growth Stocks (We're Looking at You, Amazon)
Apr 8, 2016

  • The river of no returns
  • The 80/20 rule and the importance of patience
  • It's going to be a celebration!

Make a list of the smartest CEOs around and Jeff Bezos would come somewhere near the top. Amazon is a model of efficiency and ruthlessness.

Bezos just released his annual letter for shareholders. And true to his reputation, it is choc-a-bloc with wisdom and great insights.

As a consumer, I can't complain about the company. But don the hat of an investor and things get tricky.

I'm not talking shareholder wealth destruction. On the contrary, Amazon has been one of the biggest wealth generators. Despite the tech bubble of 2000 and the financial crisis of 2007-08, the stock's been a massive 340-bagger.

But wait... A look at the company's financials tells us something's fishy.

The company has made losses in two of the last five years. And all it has to show for its humungous US$300 billion market cap is a profit of US$600 million. Put differently, it's commanding a PE of more than 600x.

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