Why Amazon Trades at Such Lofty Valuations
Large-cap tech stocks with highest PE ratios
In this part of the series, we’ll look at some of the richly valued companies among the large-cap tech stocks. As the graph below shows, Amazon (AMZN), Netflix (NFLX), Broadcom (AVGO), HP Enterprises (HPE), and Alibaba (BABA) are the priciest large-cap tech stocks.
Amazon trades at a premium
Amazon tops that list, as it’s trading at a ludicrous 245.8x trailing-12-month earnings. The company always trades at a premium because not only is it a leader in e-commerce, it is also a pioneer in the cloud services segment and operates in many other markets including original content.
Interested in AMZN? Don't miss the next report.
Receive e-mail alerts for new research on AMZN
However, another reason why the company trades at such lofty valuations is that the company repeatedly invests a lot of money to enter into other businesses, which reduces its net income.
Netflix is second on the list with 226x trailing-12-month earnings. The company’s subscriber base is growing at a rapid pace, as we saw in the previous part of the series, and the company has many more markets yet to tap. Thus, the company’s stock is trading at a premium.
Broadcom (AVGO) has benefitted from Apple’s surge, as the chipmaker is the latter’s important chip partner. The company’s stock has almost doubled in the last two years. It’s currently trading at 205x the trailing-12-month earnings.