Jeff Bezos, Stock Picker: He Likes a Certain Stock With a PE Above 100
Amazon (AMZN) bought back 5.3 million shares of its stock in February, paying $181.38 per share, according to the company’s 10-Q filing, and with the stock now well above $200 one might be inclined to cheer CEO Jeff Bezos on.
But is that really a good use of the company’s cash? Sure, Amazon shares were down substantially from earlier highs during February. But they were still trading at more than 100 times trailing earnings, a crazy PE ratio. Would the market cheer Bezos if he acquired another company outright at such a price? Doubtful.
The stock buybacks have the look of a company trying to prop up its share price. Sure, Amazon hands out huge amounts of equity to its employees, and keeping shares outstanding from zooming up is a natural urge, especially for a CEO who owns 88 million shares, or nearly 20% of the company.
And Bezos has chosen to emphasize revenue growth at the expense of profits.
So, conserving cash would seem smart. If nothing else, Bezos needs to keep cash around to pay the U.S. Postal Service and United Parcel Service (UPS) for all those deliveries that are free to Amazon Prime customers. Net shipping costs were $668 million in the first quarter, or 5.1% of sales. Great for customers and not so great for shareholders, unless Bezos finds a way to restore profit margins. Meantime, he might want to lay off the Amazon shares.