Dear Raymond,

As an avid trader, I am seeking to improve my analysis skills.

I have carefully been monitoring the progress of Amazon and it’s competitors (especially eBay and Alibaba). As a financial analyst, I am sure you have some advice for me on how to predict the future. Will Amazon go up or down?

Sincerely, Jean (from Belgium)

P.S. Your webinars are great.

Dear Jean from Belgium,

The name of the game in stock analysis is (drumroll please…) “ratios.”

There is one ratio, in particular, which can give you an incredibly helpful overall view. And that ratio is: Price to Earnings (also known as P/E).

Let’s give an example. Say that a company’s stock price is 100, and it’s Earnings per share (Total profit divided by # of shares issued) is 15. You divide 100 by 15, and get a PE Ratio of 6.67. You should note that, as a general rule: the higher the PE ratio, the more likely it is that the stock is overvalued.

Let’s have a look at Amazon’s PE ratio relative to its industry, sector, and s&p 500 average. Incredible! Amazon’s stock has a PE ratio of 1,160 while it’s competitor’s average is hovering around 20. Something to think about. Have a great weekend.

Best Regards,

Raymond.