Apple Vs. Amazon: Who Do You Vote For?

 |  Includes: AAPL, AMZN
by: Bill Gunderson

I have seen a lot of debates on the boards recently about which is a better stock, Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN). It could easily be argued that each company is one of the very best survivors of the tech boom of the late 1990's, early 2000's- A boom that saw many more companies fail than succeed. It is also fair to say that each company has helped to change the world that we live in today.

How many of us sit in our easy chairs and orders items from Amazon while using our iPad, or Mac Computers? It is sure a lot easier than going to the mall, fighting for a parking place, and walking up and down looking for that perfect outfit that fits just right.

Apple computer is now a $342 billion market cap company. Depending on the day, it or Exxon Mobil (NYSE:XOM) are the largest publicly traded companies in the world.

Amazon is a near baby at just $102 billion in market cap, but it continues to close in on Wal-mart's (NYSE:WMT) market cap of $186 billion. Wal-mart continues to be the largest retailer in the world, while Apple is the largest company in the world.

Amazon is a much younger company than Apple, however. Amazon went public in late 2001, while Apple has been public since 1980. Some would argue that we should just count the Steve Jobs era that started over in 1997. I think that is fair. Obviously, the size advantage goes to Apple over Amazon.

Amazon has been growing its earnings by 39% per year over the last five years, while Apple has been growing its earning by 60% per year over the last five years.

Advantage Apple.

Now let's compare the performance of these two tech giants over the last 1,3,5, and 10 years:

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Stats from my app, on the iPhone I bought from!

The summary of the head to head comparison looks like this:

1 Yr. Ret. 3 Yr. avg. 5 Yr. avg. 10 Yr. avg.
Apple 27.9% 60.7% 37.9% 46.6%
Amazon 43.8% 56.6% 47.1% 41.1%
S&P 500 0.4% 3.3% -2.9% 0.8%
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As you can see, both stocks have clobbered the S&P 500 over the last 1,3,5,and 10 years. I would say that the chances that they continue to do so are quite good. More on that in a bit.

As far as head to head performance goes, it is very close, but I will give a slight nod to Amazon.

Now let's look at the valuations of each company:

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Data From Best Stock Now App

As you can see, Amazon is currently trading at a nosebleed type forward PE ratio of 70.01! Its current PE ratio is 99.14, while its Price to Sales is 2.5, and its Price to Book Value is 12.95.

It is expected to grow its earnings by about 27.7% per year, over the next five years.

Amazon is expected to make $3.21 in EPS next year. At a five year growth rate of 27.7%, they would make approximately $8.38 in EPS five years from now. The company would need to trade at a multiple of 45 at that time in order to warrant a five year target price of $383.77, or just over 70.8% higher than where the stock trades today.

$8.38 X 45 = $383.77

Many would argue that a 45 PE ratio is awfully generous for a company like and rightly so. It does trade at a PE of 99 and a forward PE of 70 right now, however. Maybe its price to sales ratio is a better way to value the company. I will just stick with an earnings based valuation for comparison, however.

Now let's look at the current valuation of Apple:

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Data From Best Stocks Now App

Apple is trading at just 11.28 times forward earnings right now. It has a PE ratio of 14.63, Price to Sales ratio of 3.49, and a Price to Book Value ratio of 5.04. Apple is currently trading at a significant earnings discount to Amazon.

Apple is expected to grow its earnings by just under 23% per year, over the next five years. They are expected to make a whopping $32.79 per share next year. At a five year growth rate of 22.95%, Apple would be earning $74.93 per share, five years from now. It would only take a multiple of 11 to justify a five year target price of just over $805 per share or 118% higher than where the stock is today.

$74.93 X 11 = $805

Remember, it took a multiple of 45 to get Amazon to a price just 70% higher than where the stock is today.

To me, this is the big deciding factor as to which stock is better at the current time. I believe that even without Steve Jobs, Apple also has a lot more potential to continue developing new products, more so than

In the end, they are both great companies that have changed the world, and they probably both belong in a high growth portfolio. I give a big advantage to Apple however, from a valuation point of view and from an innovation perspective.

Disclosure: I am long AAPL.