Instapundit links to a Power Line post which links to a post by Rob Long that is criticizing a column by Thomas Friedman of the New York Times. I frequently disagree with Mr. Friedman’s work, but his critics are wrong in this case. Mr. Friedman’s column is making a very simple but important point that was true when he wrote it, and is just as true now as it was then. To prove his point, Mr. Friedman’s exaggerates and says that Amazon is doomed. Did he really think Amazon was doomed? I don’t think so.
The point he’s trying to make is that when he wrote the column Amazon (and other Internet stocks) were trading at prices which would never be justified by their future earnings. In the midst of a market where everyone was buying any stock even remotely connected to the Internet without regard to its price or value, Friedman writes an article implying that the whole Internet thing might just turn out to be a bubble. Yes, Amazon was trading at less than $60 per share then, and its trading at over $180 per share now. Later in 1999, the price of Amazon stock rose to over $100 per share, before falling to a low of $8 per share in 2001. It took several years before the share price rebounded to 1999 levels.
How can Amazon have been overpriced in 1999 if it is selling at a much higher price today? The only way is if it is overvalued now, much like it was then. As I write this, Amazon stock is trading at about 72 times earnings, and WalMart is trading at about 12 times earnings. I’m not saying that Amazon doesn’t have a bright future, because I think it may. I do have to ask though, if Amazon’s future prospects are six times brighter than those of WalMart? I don’t think so. That was Friedman’s point in 1999, and its just as true now.