By Stephen Rosenman:

Amazon (AMZN) savaged Barnes and Noble (BKS) and Best Buy (BBY) in much the same way Wal-Mart (WMT) destroyed mom and pop retail in the 1980s and 1990s: It used disruptive technology to change how we shop. Amazon's internet selling threatens brick-and-mortar retail. Investors bought into that vision: Amazon has a 135 P/E.

Yet, it's not time to declare victory.

Amazon appears vulnerable: As the company grows, its bottom line is getting crushed. True, Amazon is pouring money into fulfillment centers and capex, investments that may deliver over time.

However, the growth comes at a steep price: Margins are crumbling. This year, operating margins dropped 230 basis points to a meager 1.8%. Next quarter, Amazon guided down with operating income lower by 69 to 162%. If the present trend holds, the company's operating margins will turn negative sometime this year.


(Data courtesy of Morningstar)

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