2-Star Stocks Poised to Plunge: Amazon?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online retail giant Amazon.com (NAS: AMZN) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Amazon's business and see what CAPS investors are saying about the stock right now.

Amazonfacts

Headquarters (Founded)Seattle (1994)
Market Cap$97.1 billion
IndustryInternet retail
Trailing-12-Month Revenue$43.59 billion
Management

Founder/Chairman/CEO Jeff Bezos

CFO Thomas Szkutak

Return on Equity (Average, Past 3 Years)19.7%
Cash/Debt$6.33 billion / $0
Competitors

Apple (NAS: AAPL)

eBay (NAS: EBAY)

Wal-Mart (NYS: WMT)

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 20% of the 5,965 members who have rated Amazon believe the stock will underperform the S&P 500 going forward. These bears include All-Stars Kevman24 and TSIF, both of whom are ranked in the top 10% of our community.

Earlier this month, Kevman24 wrote that the Amazon bear case all boiled down to price:

Way way way too high. Fantastic company but this P/E is way out of line in tentative markets. Added to that, it doesn't pay a dividend. ... Don't get me wrong, this company is doing everything right and I believe in its long term success, but it is just priced way too high for my liking.

In fact, Amazon currently sports a lofty P/E of 112.6. That represents a clear premium to competitors like Apple (14.6), eBay (23.2), and Wal-Mart (12.1).

CAPS All-Star TSIF expands on the underperform argument:

Factoring in the cash flow and growth, Amazon has weak margins overall. ... [G]uidance is extremely broad going forward, including [a possible 4Q loss]. I do understand that much of the loss is ramping up the new Kindle and that a loss on the product is not a bad thing overall if it generates supporting sells. ...

The P/B of 13 is not supportable with losses, even temporary ones. I never liked their inventory position or their receivables and accounts payable, but they fit their model. The no debt and $14 per share cash is a nice cushion and will prop them up as they revamp, but overall, I think they got too aggressive at the wrong time and this may be the mistake that "right sizes" them.

Wrong play, wrong time, not a 100 Billion market cap company. I appreciate how they opened Internet Commerce up to its full potential where others couldn't, but the market sentiment now requires crisp execution and not forward wishful thinking.

What do you think about Amazon, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to trackAmazon?Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Amazon, eBay, and Wal-Mart, as well as creating a bull call spread position in Apple and a diagonal call position in Wal-Mart. The Motley Fool owns shares of Apple and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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