Saturday, March 13, 2010

Amazing Amazon

What can I say about Amazon?

It is expensive and it is lovely, just like a pair of Armani jeans or a Lamborghini.

All CEO Jeff Bezos talks about the is Kindle - Amazon's eBook reader. And you can see why. The statistic that 6 eBooks are sold for every 10 physical books where both are available is astounding. Only a couple of million Kindles have been sold so far so Kindle owners really do read!

There is no doubt that in the long run books are going digital. Amazon want to do to eBook readers what Apple did to MP3 players - bring them to the mass market and own the space. If they achieve that goal there is no doubt that the current market price will appear cheap.

However I don't think everyone will be willing to fork out $250 for a black and white book reader when you can get an iPod touch for $200. But if everyone starts using the iPhone Kindle app. then that would be something.

That brings me to the fundamentals:

Market Cap: $60 Billion
Dividend Yield: 0%
Cash: $6 Billion
2010 PE: 45
Predicted Growth Rate: 30% annual

Amazon is not cheap. It hasn't been cheap for a long time and I don't think that is about to change. But it is growing at a rate of over 30% and seems able to sustain that over the medium term.

Some might call it speculative but I want some!

Here is the scorecard:

Growth Potential: 9
Risk: 8
Valuation: 4

That give Amazon a score of 21 out of 30.

Next up is Valeant Pharmaceuticals.

Saturday, March 06, 2010

Invest Intuitively

Now for part 2 of my 4 part "battle of the growth stocks" series.

Intuitive Surgical (ISRG)

ISRG makes robots for performing surgery. The robots are controlled by a surgeon sat in the same room as the patient but the fact that all the surgery is actually performed by the robot arms allows the surgeon much more control over the incisions and makes the operations much less invasive. The benefits in terms of patient recovery time are enormous.

There are over 1400 da Vinci Surgical Systems installed worldwide. Best of all, once a system is sold ISRG get revenue from every operation as it sells the disposable parts. This recurring revenue now accounts for over 50% of total revenue and the proportion is growing.

Even in the turbulent economy of last year ISRG sold 338 systems - quite an astounding figure.

ISRG is the global leader in robot surgery. Once a hospital has invested in the system and the associated staff training it would be financially painful to then change to a competing product. This gives ISRG a very strong position.

There is no doubt that ISRG is a very attractive company. Here are the fundamentals:

Market Cap: $14 Billion
Dividend Yield: 0%
Cash: $1.2 Billion
2010 PE: 45
Predicted Growth Rate: 25% annual

There is a feeling that, in terms of the ISRG share price, the ship has already left the dock. When it was under $100 last spring the valuation was compelling but with the shares selling for $360 it hard to see ISRG as a bargain. The ship may come back to the dock at some point in the future of course but a purchase at the current price would be speculative.

So the results:

Growth Potential: 7
Risk: 8
Valuation: 4

That give ISRG a score of 19 out of 30.

Next is Amazon.