AMaZiNg – 3,893 Tech Sector P/E Ratio Is Back

Quadruple digit P/E ratios – like 3,893 – were thought to be in the past. Courtesy of America’s premier online retailer we just got a flash from the past. Does that mean it’s time to party like it’s 1999?

Triple and quadruple digit P/E ratios of the late 1990s are fond memories for some and nightmares for others.

Regardless of your memories, the fifth largest component of the Nasdaq-100 just hit a P/E ratio of 3,893. Who is this ‘bubbleishous’ tech stock? Amazon.

Talking about nightmares, Amazon has become a nightmare to brick-and-mortar retailers. Amazon is spending tons of cash to make sure Amazon’s e-commerce site haunts brick-and-mortars day and night.

As the chart below shows, Amazon’s revenue (green columns) has grown steadily, but net income has taken a hit as profits are reinvested into new warehouses, called ‘shipment hubs.’

In 2012, Amazon added 20 shipment hubs, which decreased shipment costs from 4.5% of sales to 5.4% of sales (about $430 million).

Amazon’s gross margins widened from 20.7% to 24.1% and investors applauded the aggressive expansion, sending AMZN to an all-time high.

AMZN accounts for only 1.02% of the SDPR S&P Retail ETF (XRT), nevertheless, XRT is also trading at an all-time high.

Does this validate a P/E ratio of 3,500+ though? It’s a classic scenario of ‘mind over matter.’ As long as investors don’t mind, it doesn’t matter.

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