A Look at Why $AMZN is a Beast

“Warren Buffett is known as the world’s most famous “value investors”, but that term is not well understood.

In his latest letter to shareholders (.pdf), Buffett includes a great paragraph explaining that value is not synonymous for cheap.

More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price. Despite the compelling logic of his position, I have sometimes reverted to my old habit of bargain-hunting, with results ranging from tolerable to terrible. Fortunately, my mistakes have usually occurred when I made smaller purchases. Our large acquisitions have generally worked out well and, in a few cases, more than well……

…..Over the past four quarters, for instance, Amazon.com AMZN generated $61.1 billion in revenues. Its cost of goods sold, or basic expenses, amounted to $44.3 billion, leaving gross profits of $16.8 billion on total assets of $32.6 billion. But, largely because the company spent nearly $14 billion on R&D and marketing, its reported net income was negative $39 million.

Amazon is one of the most controversial stocks in the world, because it’s price-to-earnings ratio has always been sky high. It’s currently trading at a nosebleed 180x forward earnings.

But it’s one of the highest quality companies in the world, generating incredible gross profits relative to its assets, and the stock has had an amazing run because of it.”
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Read more: http://www.businessinsider.com/warren-buffett-on-high-quality-stocks-2013-3#ixzz2MOUz0ooO