Amazon’s P/E ratio vs. the market average, over the course of its entire history, has been high. On average, Amazon’s P/E multiple has been 211x, while the market multiple has averaged 22x.
It has always looked expensive. On other key measures, the story is the same. GAAP profits and returns on invested capital have been negative.
Yet, unlike many other tech executives, Bezos understood value and how to measure business performance. He knew the stock was a value play despite the usual metrics flashing red. How?
The question we must ask is how did Bezos measure the performance of his business despite being in the growth phase with low margins and poor ROIC?
Connections
Value Investing Requires A Paradigm Shift In The 21st Century
Link Explanation: The linked note is very similar to the current note. Both tackle the ‘Amazon Issue’. A stock that looked overly expensive its entire life, but, was clearly a value stock nonetheless. Value investors got it wrong. The difference between this note and the other though, is that this note recognizes that Bezos understood business value and was in fact, a huge fan of Buffett. It’s not as if he was blind to the traditional measures. So we have to ask, how did Bezos measure the value and trajectory of the business?