My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


By Topics

Overall:
0. About (10)
1. My Progress (139)
2. Car & Home (107)
3. Credit (138)
4. Banking (33)
5. Saving (49)
6. Investing (308)
7. Taxes (89)
8. Spending (74)
9. Misc (97)
A. Archive (49)



MONTHLY ARCHIVE

Feb 2014 (3)
Jan 2014 (6)
Jan 2012 (1)
Apr 2011 (1)
Mar 2011 (1)
Feb 2011 (1)
Jan 2011 (1)
Dec 2010 (1)
Oct 2010 (1)
Sep 2010 (1)
Aug 2010 (1)
Jul 2010 (1)
Jun 2010 (1)
May 2010 (1)
Apr 2010 (1)
Mar 2010 (6)
Feb 2010 (2)
Jan 2010 (7)
Dec 2009 (3)
Feb 2009 (4)
Jan 2009 (8)
Dec 2008 (1)
Jun 2008 (2)
May 2008 (2)
Apr 2008 (5)
Feb 2008 (3)
Jan 2008 (15)
Dec 2007 (32)
Nov 2007 (6)
Oct 2007 (8)
Sep 2007 (9)
Aug 2007 (24)
Jul 2007 (2)
Jun 2007 (1)
May 2007 (3)
Apr 2007 (4)
Mar 2007 (4)
Feb 2007 (13)
Jan 2007 (6)
Dec 2006 (3)
Nov 2006 (7)
Oct 2006 (7)
Sep 2006 (6)
Aug 2006 (4)
Jul 2006 (10)
Jun 2006 (1)
May 2006 (3)
Apr 2006 (2)
Mar 2006 (6)
Feb 2006 (6)
Jan 2006 (3)
Dec 2005 (1)
Nov 2005 (9)
Oct 2005 (8)
Sep 2005 (13)
Aug 2005 (25)
Jul 2005 (16)
Jun 2005 (17)
May 2005 (19)
Apr 2005 (20)
Mar 2005 (24)
Feb 2005 (23)
Jan 2005 (36)
Dec 2004 (40)
Nov 2004 (34)
Oct 2004 (17)
Sep 2004 (21)
Aug 2004 (59)
Jul 2004 (37)
Jun 2004 (31)
May 2004 (29)
Apr 2004 (52)
Mar 2004 (49)
Feb 2004 (49)
Jan 2004 (31)
Dec 2003 (48)
Nov 2003 (52)
Oct 2003 (29)
Sep 2003 (8)
Aug 2003 (5)
Jul 2003 (2)
Jun 2003 (2)
May 2003 (5)
Apr 2003 (2)
Mar 2003 (2)
Feb 2003 (3)
Jan 2003 (29)



 

Is Amazon Overvalued?

Contributed by mm | October 21, 2003 4:08 PM PST

SmartMoney has an interesting story in its Price Check column about Amazon. It explores value of Amazon in four valuation methods:

1) Ben Graham's Formula: P/E = 8.5 + 2G (G = annual earning growth rate). By putting G = 25%, the valuation is $33.35.

2) Discounted Cash Flow: the article uses the calculator from MoneyChimp.com with the following aggressive assumptions:

- EPS = 0.57 (consensus estimate)
- EPS to grow 25% for 10 years, with a stable growth rate of 4% thereafter
- Discounted at 10%

Valuation = $47.78

3) Capital Asset Pricing Model: Risk-adjusted discount rate = risk-free rate + beta * (benchmark rate - risk-free rate)

Amazon.com is too volatile in recent years so its three year beta is actually 2.6. The article uses a judgment call to set the beta as 1.2 (which is reasonable as Amazon is definitely more risky than the overall market). Assuming the risk-free rate to be 10-year treasury yield, the risk-adjusted discount rate is set to be 11.12%, which brings the valuation in DCF calcuation to be $38.54.

4) The Damodaran Method: Valuation = $36.42.

The article concludes that Amazon is significantly overvalued, which I concur. However, it's hard to short this market favorite now. I'm considering to buy put options sometime to play this game.

Also the calculators are pretty interesting. I decide to use them to examine my current holdings after this round of quarterly releases.

More PFBlog Articles You Might Find Interesting ...



Read More ... 308 Posts In The Same Category










This page was last rebuilt at January 27, 2014 07:57 AM PST.
 

RSS FEED





PERSONAL FINANCE BLOGS I READ

Consumerism Commentary
Get Rich Slowly
My Money Blog
All Financial Matters
The Simple Dollar






.

Error 500 - Internal server error

Error 500 - Internal server error

An internal server error has occured!
Please try again later.



Copyright 2003-2014, PFBlog.com. All Rights Reserved. (Privacy Policy)