What is Amazon.com (AMZN) Worth?

There are no ifs, ands, or buts about it, Amazon.com Inc. (Nasdaq: AMZN) is killing it. It is the place to go online to buy books, dvds, electronics and other items. But with shares not trading on any reasonable P/E metric, what are shareholders valuing it at?

Today two sell-side firm's raised their price targets on Amazon.com and here is how they got to their price targets of $172 and $155 respectively.

• Piper Jaffray's Gene Munster lifted his price target on AMZN to a 'street high' $172 today. Piper is using 40x 2011 pro forma EPS of $4.31 to get to their price target. They have an Overweight rating on the stock.


• Kaufman Bros' Aaron Kessler lifted his price target from $120 to $155. The firm's price target is based on 32x 2011 pro forma EPS of $4.82 or 1.6x PEG assuming 20% LT growth. They have a Hold rating on the stock.

While these two analysts are both over $4.00 per share for EPS in 2011, another analyst said this level of earnings may be unreasonable. With trailing three years EPS of $1.12, $1.50 and $1.88 respectively, Standpoint Research said EPS may not top $3.00 before 2012.

Well for augments sake, lets crunch the numbers if AMZN makes $3.00 in 2011 (not 2012 as Standpoint suggest). If this was the case, it would still represent strong growth from this year's estimated $1.89 but not as strong of growth as the $4.00+ in expected earnings from the two analysts mentioned above.

If AMZN traded at 40x 2011 EPS of $3.00 then this would get you to a price of $120, well below the current market price of $139.51.

So if you are long Amazon.com you better hope that $4.00 EPS, more than double the current EPS level, is a reasonable or conservative assumption for 2011. If it is, then you can rest assured that the shares have more room to run. If $3.00 EPS better represents the level were 2011 EPS could fall, then shares are already overvalued based on 40x this forward EPS number.

Are you long Amazon.com? If so what is the metric you are using to value the stock?

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