I know I am not a huge stock guy. I prefer tangible assets that I have complete control over like real estate. Right now I hate the stock market and do not personally have a single dime in stocks. I sold everything I had in the markets last year for a massive profit. Yes, since I sold all of my stocks, the markets have continued upward. Honestly, I could care less. I originally entered the market when the Dow Jones was around $9,000 after the financial crisis and sold all of my stocks when it was above $18,000.
Today the Dow is approaching $21,000. One thing is for sure however, I will not be stuck holding stocks when the party ends. For me I would much rather sell when I know I have locked in a huge gain than try to squeeze every last penny out of a bull market and risk going over the edge during a major correction (which we all know could be any moment now). Anyway, with that said:
I came across an article today that really caught my attention. It was on the CNN Money website with the headline:
“Amazon is worth almost twice as much as Walmart” http://money.cnn.com/2017/04/04/investing/amazon-stock-900-alltime-high/
I started looking at Amazon’s stock on Yahoo Finance. Here is the stock summary for today:
The very first thing I noticed was Amazon’s extremely high PE Ratio (price to earnings ratio). The price to earnings ratio is a metric to show how profitable a company is compared to how expensive its share price is. When the PE Ratio is very high, that signifies that it is potentially overvalued. When the PE Ratio is very low, it signifies that it could potentially be very undervalued and a good bargain.
So how do we know what is considered a high PE Ratio versus a low PE Ratio? The chart below is from the Wall Street Journal today and shows what the average PE Ratios are for the different indexes.
We can see from this chart that the average PE Ratio for stocks listed on the Nasdaq is about 26. Amazon is listed on the Nasdaq, and it has a PE Ratio of 185.5. That is more than 7 times the average! Based on this metric alone, AMZN is extremely overvalued!
Here is a snapshot of Wal Mart’s stock summary today so that we can compare it agains AMZN, which apparently is now “worth twice as much.”
WMT currently has a PE Ratio of 16.34. This tells me that it is fairly valued in comparison to most other stocks. By buying WMT shares you are getting more earnings for your money. Not to mention, WMT offers shareholders a 2.04% annual dividend yield. AMZN does not distribute dividends.
If I currently owned AMZN shares, I would certainly be selling right now. Will AMZN continue to rise? Most likely it will… but there is no telling how much more. There is certainly no denying that selling now would guarantee you a solid profit that can then start hunting for the next big play, something that is currently extremely undervalued. Remember, buy low sell high… and AMZN is certainly high right now. It’s not rocket science. Maybe I would sell AMZN and put the proceeds into WMT. Who knows.
With everything else set aside, just look at this chart of AMZN. Tell me that it is not a good time to sell, and anyone buying right now seems to be buying at a “high” point. Just my two cents for whatever it’s worth.