Is This a Rare Opportunity in Amazon?

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Amazon Inc. (NASDAQ:AMZN) shares showed unusual weakness over the past few days after reporting disappointing guidance going forward. Shares peaked at above $400 Thursday before tumbling Friday and Monday. Today, it’s trading at just under $350/share.

When the company reported earnings, it released the kind of numbers that investors have come to expect. Sales grew significantly — up 20.2 percent — but profits were virtually nonexistent, coming in at just $251 million for a company valued at $160 billion. There has been an ongoing debate regarding Amazon’s valuation. On the one hand, the company is the dominant e-commerce force throughout much of the western world. This is great news for investors as e-commerce itself is a rapidly growing sector of the economy. The trend has been so strong that it actually grew during the financial crisis back in 2008.

More generally, Amazon is one of the few major retailers that is growing its sales rapidly and consistently. In order to find similar growth among retailers, one has to look for niche retailers such as Michael Kors (NYSE:KORS) or Chipotle Mexican Grill (NYSE:CMG). This makes Amazon a one-of-a-kind investment opportunity.

But in order to retain its dominance and grow its sales at such a rapid pace (31.2 percent compounded annually for the past five years), the company has had to forego profits in order to develop its massive infrastructure. Despite its $160 billion valuation, the company has earned just $3 billion over the past five years. While short-sellers have used this observation to justify their position, the stock has climbed ever higher. Shares are up 590 percent over the past 10 years versus the S&P 500, which is up just 53 percent.

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