AMZN

(Sources: SEC Documents, Citigroup Investment Research, William Blair & Cmpy Research)

If there is one company that totally defies the common "textbook" valuation methods taught in many schools today, that stock is Amazon. Historically, many investors are taught to look for companies with low to moderate PE's, low debt levels, cheap on price-to-book metrics, etc. for "long" buys and for "shorts" look at the opposite (high PE's, etc). AMZN right now sells at 50x 2009E and about 48x 2009E (current price $77.99) however, many analysts believe it is going higher. Since April 20th, Citi upgraded them to buy with $97 PT, RBC to outperform with $95 PT, and Benchmark to Hold with $80 PT. Even with those valuations, the multiples are extremely high. In addition, there has been extreme insider selling highlighted in the exhibit above.

Now raising the question, why the high price targets? One main reason is that Amazon has the ability to generate high free cash flow compared to its peers. The other reason, basically the key reason, is the Kindle. Bezos just released a new Kindle DX that is suppose to cost around $450 but will be larger in size. These valuations seems astronomical; however, the main question remains how big will the Kindle be? Above are some Citi estimates for the Kindle (just the old version) and also some Company FY pro forma estimates by William Blair.

Some investors (short sellers) believe everything is priced in Amazon and believe it's worth a lot less. However, other investors (the longs) believe that the Kindle has the potential to be the next "ipod" and bring amazing success. I am stumped because this is the first stock that I actually want to buy; however, want to short. Interesting to say the least but defintely a stock to research and develop a view towards.