Amazon breaks barrier as most expensive stock

Online retailer in a valuation class all its own

Amazon likes to undercut rivals’ prices on everything but this: its stock price.

The online retailer’s shares are now trading for almost 950 times diluted earnings during the past 12 months, which makes Amazon the most expensive stock in the Standard & Poor’s 500 index, according to a USA TODAY analysis of data from S& P Capital IQ. It’s also the only stock in the index that has currently cracked the 900 price- to- earnings barrier.

There are 14 stocks in the S& P 500, including video streamer Netflix and social media king Facebook, trading for 100 times or more their diluted earnings before extraordinary items.

With the financial crisis and battered stock prices a distant memory, investors are showing they’re willing to pay for stocks. The P- E on the S& P 500 is now 20 based on operating earnings, S& P Dow Jones Indices says. That’s above the average 18.8 valuation on that basis since 1988.

Amazon’s P- E is 14 times higher than the astounding 67% annual growth analysts expect long term from the company. That’s an off- the- charts valuation using traditional rules of thumb. Investors start to think a stock is pricey when its P- E is two times its expected growth rate.

Amazon didn’t even have a P- E in March 2000 when the Nasdaq composite peaked because the company still was losing money. Amazon’s valuation today is far from Yahoo’s 2,225 P- E in March 2000; Yahoo has a 135 P- E today. Fifteen years after the dot- com peak, the online media company’s stock is down 43% even though earnings are up 525%.

Investors ridiculed for “overpaying” in 2000 have the last laugh as Amazon stock is up nearly 900%. Amazon could grow into its valuation; the stock is trading for 120 times the $ 5.50 a share it’s expected to earn in 2016.