Seeing a chart such as the one below, one could easily be mistaken to think that he was looking at two very similar, and correlated, companies.
click to enlarge
Yet, what's most incredible about this chart is that it can exist at all. Or that for most periods, Amazon.com (AMZN) was actually producing a higher return than Apple (AAPL), although that has changed recently.
Apple and Amazon's businesses are not alike: Apple builds its own products and sells them at high prices and margins, whereas Amazon.com sells mostly other people's products at low prices and low margins. More importantly, the development of their businesses has been, over the timeframe covered by this chart, quite different. The following table, comparing FY 2007 to FY 2011 for both companies (source: AMZN, AAPL), shows just how different.
So here you have 2 companies that are quite different at heart, that have incredibly distinct moats - Apple has a strong brand name allowing it to price to perfection and yet the mobile carriers can only say "thank you sir, may I have another"; Amazon.com either sells at the cheapest non-sales taxed price, or it doesn't sell. It either prices the Kindle at cost, or it doesn't sell. And yet, the market, in all its fuzzy logic, managed to give both companies a stock performance that was, until very recently, favorable to AMZN.
The end result was predictable. Today Apple sells at a forward P/E of 11.9 while expected growth in earnings for the year is 54%. Conversely, Amazon.com commands a forward P/E of 137 with earnings actually expected to fall 3.7% this year after plunging 40% the year before.
It's clear from the table above and the multiples that Amazon.com only matched Apple's run entirely due to multiple expansion. And unwarranted multiple expansion at that as Amazon's earnings have been going nowhere for years.
While a rational case can be made to hold Apple shares at present record levels, no such case can be made for Amazon.com. Indeed, it's fairly easy to imagine Amazon.com experiencing a considerable plunge from current levels, easily losing 50% or more of its value, and still being far from cheap. Caveat emptor to those who would consider buying Amazon.com here.
Also, after the parallel runs these stocks have had, I'd be willing to bet that there's a lot of machine algos out there filled to the gills with Amazon stock just due to the correlation between the two stocks. The correlation will one day break - indeed, it might already be happening, and then you'll have all those machines dumping along with everybody else, accelerating the sell-off.