Amazon’s $40 Stock Price Fall Justified

Amazon (AMZN) is one of the top five companies to come into existence during my lifetime. When we look back on the top storylines of the 1990s through 2010s, the growth of Amazon and its role in making e-commerce socially acceptable will be one of the storylines when we review the tale of our civilization decades from now.

But for the past few years, the problem has always been that Amazon’s valuation was so completely obscene that even highly optimistic expectations could still eventually translate into mediocre returns. Because stocks have valuations, you find yourself getting interested in things like Viacom, BP, and IBM even though you know other publicly traded corporations have higher growth rates.

My theory relating to Amazon’s valuation has been pretty simple. Over very long periods of time, all large-cap non-cylical stocks tend to converge towards a P/E ratio of about 20. Maybe some mega-caps are … Read the rest of this article!