When is David Einhorn Going to Short Amazon?

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David Einhorn, billionaire hedge fund manager and founder of Greenlight Capital, isn’t fond of a certain Internet retailer. Amazon.com (NASDAQ: AMZN) has been the target of a number of comments from Einhorn over the last year, all decisively negative. But will the famed short seller ever step up to the plate and short Amazon’s stock?

Einhorn has a history of shorting overvalued companies
Einhorn has said that his fund has made more money on its long positions than its shorts. But Einhorn himself rose to fame through a number of well-timed short calls: Notably Lehman Brothers before its epic 2008 collapse, and before that, Allied Capital.

But Einhorn has also gone after a few stocks with excessive valuation: Green Mountain Coffee (NASDAQ: GMCR) and Chipotle Mexican Grill (NYSE: CMG). This propensity to target richly valued companies has made Einhorn the focal point of a number of rumors. To date though, Einhorn hasn’t been linked to Amazon. But maybe it’s only a matter of time until that speculation heats up.

Amazon at current levels is an expensive stock
If Einhorn were to attack Amazon based on its valuation, it wouldn’t be an absurd call. Amazon has no P/E ratio -- since it has no real earnings against which to compare its price -- and pays no dividend. Amazon reported a loss of $0.60 back in October, and actually lost money over the past year, effectively rendering its P/E ratio nonexistent.

If you take the company’s most recent quarterly earnings figure, $0.21; multiply it by four (to adjust for four quarters); and calculate the P/'E ratio that way, you get an astounding 311. For comparison's sake, the S&P 500 as a whole is currently trading with a P/E near 17.26.

In October, at the 2012 Value Investing Congress, Einhorn unveiled his short case for Chipotle Mexican Grill. He emphasized rising competition from Yum! Brands, but also noted Chipotle’s excessive P/E multiple (over 30 both back then and now).

Likewise, at the 2011 Value Investing Congress, Einhorn unveiled his short case against Green Mountain. Here too, Einhorn made reference to the company’s excessive multiple of 36, which he called “super-premium” and “difficult to justify.”

If Einhorn finds a P/E ratio above 30 excessive, one can only speculate on his opinion of Amazon’s.

Apple made more money last quarter than Amazon has ever made
Einhorn made that statement about Apple and Amazon to Bloomberg anchors last Friday. He quickly followed it up with a caveat, clarifying that he wasn’t short Amazon.

Yet, between the lines, the implication was there: Apple’s shares have tumbled well over 30% since September despite the incredible amount of money the company makes. Amazon shares, on the other hand, have rallied about 10% over that period of time, despite the fact that the Internet retailer earns about the equivalent of Apple’s pocket change. (Interestingly, Einhorn also noted that, if one takes out Apple's cash, the company is trading at a PE near 8 -- further soldifying Einhorn's belief in P/E ratios as an indicator of value.)

Jeff Bezos: The Caped Crusader
Last May, at the Ira Sohn Investment Conference, Einhorn mocked Amazon and its iconic CEO Jeff Bezos, comparing the latter to Batman. Maybe Einhorn’s comparison isn’t that far off the mark.

Although it seems unlikely that the nearly 50-year old billionaire lives a dual life as a masked vigilante, Bezos -- like the fictional Batman -- is particularly secretive, especially when it comes to Amazon. In this case, Einhorn was referring to a statement Bezos made remarking that no one really understands how Amazon makes money.

Such statements might rouse the forensic accountant in Einhorn, who has pointed to accounting discrepancies at Green Mountain and Allied Capital in his short calls on both names.

To be crystal clear, Einhorn has never publicly alleged accounting issues at Amazon. But his statement that investors should be weary of Amazon’s secretive nature might incline one to suspect that perhaps there is further investigating to be done on that end.

Unfortunately, Einhorn’s valuation calls haven’t been home-runs
Perhaps Einhorn hasn’t targeted Amazon just yet, for the simple reason that his recent valuation calls haven’t proven to be as stellar he would’ve likely hoped.

Einhorn’s call on Chipotle, for example, was short lived -- shares briefly collapsed, but have subsequently undergone an impressive rally, and are trading back around the levels where Einhorn initially recommended shorting the stock. Even after the company’s recent quarterly performance -- which was anemic -- shares rebounded after a short-lived sell-off.

Green Mountain, too, hasn’t played out as drastically as Einhorn initially forecast.

Shares did tumble from around $100 to the mid-$20 range, but then rebounded quite tremendously. Einhorn might have closed his short in the last few weeks, but in his most recent letter to investors, Einhorn quipped that “our coffee was too hot” -- suggesting that the fund had lost money as shares more than doubled in the second half of 2012.

If this trend continues, targeting Amazon on valuation alone might not be the wisest investment.

Still, with Einhorn’s trend of targeting companies trading at a high valuation, and his derisive comments towards both Amazon and its CEO over the last several months, it isn’t hard to imagine the Internet retailer becoming the short seller's target at some future investment conference.


joekurtz is short shares of Chipotle Mexican Grill and Green Mountain Coffee Roasters. The Motley Fool recommends Amazon.com, Chipotle Mexican Grill, and Green Mountain Coffee Roasters. The Motley Fool owns shares of Amazon.com and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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