Have You Been Blinded By The Stock Light?

I may not be a passionate fan when it comes to America’s pastime. Still, baseball is serving up a seventh game of a World Series. It rarely gets better than that.

Who would have believed that the Los Angeles Dodgers would be one win away from celebrating their greatest wire-to-wire season since Kirk Gibson’s 1988 team? Who would have imagined that the Houston Astros would be poised to claim their first World Series title in franchise history?

In a similar vein of implausibility, when it comes to stocks like Amazon (AMZN), you just have to tip your cap. Here is a mammoth mega-cap with a P/E (TTM) of 280, a Forward P/E of 140, and a price-to-book of 23. Yet nobody dares short the dynamic ‘disruptor.’ What’s more, the financial media fawn over non-existent earnings growth when the company ‘blows away’ sharply lowered expectations.

One year ago, the consensus forecast for Amazon’s (AMZN) Q3 2017 earnings per share was $2. (See the chart below.) By the start of this year, Amazon was supposed to provide $1.50 per share in the third quarter.

As recently as 3 months ago, the forecasts still called for $1 in Amazon’s (AMZN) earnings picture. Then, roughly one month ago, the consensus dropped all the way down to $0.05 for Q3. Let that sink in for a moment. $2, $1.50, $1, $.05.

When Bezos’ behemoth reported its phenomenal earnings ‘beat’ of $0.52 last week, investors celebrated by sending the stock price up more than 13%. That’s the same unremarkable $0.52 as the previous year. And it is pennies compared to what the corporation had been projected to produce 12 months earlier.

Sometimes, you just have to tip your cap.

Perhaps it is unfair to call out Amazon on its unimpressive profits-per-share picture. In truth, earnings have not been the driver of asset price appreciation for quite some time. When stocks climb 35%-36% over a period of three years and ten months, yet reported earnings move a measly 2%-3%, there are other forces at play.