On Tuesday, the Fast Money pros were trying to make sense of the moves in Amazon, with shares tumbling as much as 8% in the after market.
“The trouble with this company is valuations,” says Karen Finerman. Amazon trades at an astronomically high P/E of over 100. And although the Street has accepted that multiple for quite some time, Finerman thinks that’s about to change.
Investors ran for the exits after Amazon earnings raised serious concerns about growth.
The company reported a 58% decline in quarterly profit and continued to spend heavily at the expense of margins.
With results like that, “I don’t see how they can grow into the valuation anytime soon,” Finerman says.
But rather than sell-off sharply, Finerman thinks Amazon will become the new Wal-Mart, that is dead money. She fully expects to see the stock trade in a range as the market forces shareholders to wait for the company to actually experience some of the growth that’s already priced into the stock before it makes further gains.
”10 year ago Wal-Mart was a juggernaut (like Amazon) and it traded within $1 of where the stock is right now. At that time they earned $1.45. Now they earn $4.25. In other words, they had to grow into their valuation. And that’s where I think Amazon is now. They can do everything right – triple earnings – but the stock can still go nowhere because valuations are so stretched!”
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Trader Joe Terranova shares the sentiment. “Amazon is not a name I’d want to own. Sales growth is slowing in Europe and the spending trend looks like it’s increasing.”
