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A Comparison Of Apple vs Amazon At Current Levels

30 January 2009 4 Comments

Apple and Amazon both delivered great quarters recently in a terrible economic environment.  Both stocks rallied when the earnings were announced.  While Amazon is primarily a retailer and Apple is a consumer electronic company, the stocks are comparable to an extent with regards to multiples and other metrics.  Amazon (AMZN) and Apple (AAPL) are both considered “tech stocks” and are often the leaders of the Nasdaq, whether up or down.

Interestingly, Apple seems to have been getting beaten down much more than Amazon even though they are generating amazing amounts of cash, way more than Amazon.  The Steve Jobs health issue has definitely impacted Apple’s stock in the last month or so.  But, hey, Steve Jobs doesn’t run Amazon, maybe they should suffer as well!

What has me puzzled to an extent is the difference in multiples on these stocks.  After the recent rally, Amazon trades at a 40 P/E and an forward P/E over 30.  That is extremely high during this recessionary environment.

Meanwhile, Apple trades at approximately a 16 P/E and a forward P/E around 15.  What is interesting is how much Apple’s accounting measures seem to be holding down the Apple stock.  As noted in this post, Apple’s 2008 year over year earnings growth based on the non-GAAP numbers was around 48%!  Contrast this with Amazon’s year over year earnings growth of 28%.  How interesting, no?

Potential Trade?

If you think there is an inbalance here, as I do, you may consider going long Apple and going short Amazon.  Any large scale tech weakness should balance your positions out, and you should see some upside as the multiples of the two companies converge.  Or maybe you should just short Amazon, as the 40 P/E is ridiculous in my opinion in this economy.

While this is by no means a comprehensive analysis of the two companies, I encourage you to take a look into this further.  It might be an opportunity to make some money!

4 Comments »

  • torbjorn rive said:

    Good call on the AMZN short, I think. Apple; hard to say. It’s certainly in a wavy range right now. But I guess you’re talking about investing. You’re in, now talk it up, right!?

  • Kevin said:

    I’ve actually sold most of my Apple position but I’m always looking for a good buying opportunity with the company.

    I’m hoping Apple hits low 70’s even 60’s, I will be buying many shares at those levels.

    I think Amazon has to come down though. I may short on Monday.

  • Eli said:

    I think it’s time to change your blog name from 20smoney to AllAboutAAPL

  • Kevin said:

    Not a bad idea! Is the domain taken?