These 3 Charts Tell A Story, Are Investors Listening? Amazon.com, Inc. (AMZN)

Before we get to any numbers, charts, of information, let’s establish one basic premise. Just because a company offers customers a great value does not automatically mean the stock is a buy. Investors have to understand that great businesses don’t always make great investments. Peter Lynch outlined this concept perfectly when he talked about companies from Polaroid to RCA, that were world famous brands, but the stock got ahead of the fundamentals. The stocks were bid up to many times their expected growth rate, but when their growth slowed, their stocks either went sideways or nosedived. I know some will say I’m crazy, but there are cold hard facts that suggest Amazon.com, Inc. (NASDAQ:AMZN) may be on the path to being one of these companies.

Let me get this out of the way first. I use Amazon, I have Amazon Prime, and my family bought a lot over this last holiday from Amazon. I’m not suggesting that Amazon isn’t a good business. What I am saying is Amazon is trading based on an investment thesis that is breaking down before our very eyes.

Why Are They Better?
Some of the most talked about reasons for buying Amazon stock is their efficiency, their push toward digital sales, and their huge sales growth. Many investors would scoff at the idea of buying Wal-Mart Stores, Inc. (NYSE:WMT) and their projected EPS growth of 9.2% in the next few years, when analysts are calling for over 41% EPS growth at Amazon. Even if you compare eBay Inc (NASDAQ:EBAY) and their 14.63% expected growth rate, it looks pedestrian compared to Amazon.

Amazon also offers digital content that eBay doesn’t participate in, and Walmart can’t match. Amazon offers the Kindle lineup, and Amazon Prime. Prime is a great hook for future sales, with fast shipping and a streaming video library that is beginning to rival Netflix, Inc. (NASDAQ:NFLX).

Why Are They Worse?
For each of Amazon’s strengths, their competition does a few things better. For instance, neither Wal-Mart nor eBay are projected to grow faster than Amazon, but both generate consistent free cash flow. In fact, while Amazon invests for the future, Wal-Mart generated more than $1 billion in adjusted free cash flow last quarter, or about $0.02 for every dollar of sales. EBay generated about $500 million in free cash flow, or an impressive $0.23 for every dollar of sales. Wal-Mart doesn’t have the huge fulfillment expenses because most of their sales are in store. EBay has a much higher margin business because they essentially help other people sell their wares. In the bigger picture, there are three issues facing Amazon today, and all three are getting harder to overcome on a quarter to quarter basis.