On July 26, Amazon (NASDAQ: AMZN ) reported better-than-expected earnings on
the strength of its Kindle. Although net income was down 8%, expectations were
low and Amazon beat them. Meanwhile, sales were up 51%, helped by strong Kindle
sales. In a Reuters report , CEO Jeff Bezos said, "Low prices, expanding
selection, fast delivery and innovation are driving the fastest growth we've
seen in over a decade." But does this mean you should go out and buy Amazon
stock? Here's a reason to consider buying: Rapid growth and strong balance
sheet. Amazon has been growing fast. Its $34.2 billion in revenues have soared
at an average rate of 33.7% over the past five years, while its net income of
$1.2 billion has roared up at a 56.9% annual rate during that period yielding a
slim 49% net profit margin. Its debt has declined at a 14.5% annual rate, from
$1.2 billion (2006) to $641 million (2010), and its cash has grown quickly at
44.8% annual rate, from $2 billion (2006) to $8.8 billion (2010). There are
three reasons to stay away: It is under-earning its cost of capital. Amazon is
earning less than its cost of capital and it's getting worse. How so? It
produced negative EVA momentum, which measures the change in "economic value
added" (essentially, profit after deducting capital costs) divided by sales.
In the first six months of 2011, Amazon's EVA momentum was -1%, based on first
six months 2010 annualized revenue of $27.4 billion, and EVA that
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