Financial Accounting Blog

Wednesday, January 28, 2004

John Quiggin at Crooked Timber points out that after a year of profitable business at last has a P/E Ratio.

Having finally managed positive earnings over a full year, Amazon shares have now acquired that most basic measurement of value, a price-earnings ratio. With shares at $53 and earnings of 17 cents per share, it's a bit over 300 to 1, which suggests that perhaps the New Economy is not dead after all. With revenues growing at 20 to 30 cent per year, and slowing, it's hard to see how Amazon can deliver the four or five successive doublings in profit that would be needed to justify this price.