The e-commerce powerhouse is advancing on many fronts, but the faster-growing Macs maker is six times cheaper, writes MoneyShow.com senior editor Igor Greenwald.

On a day the Dow dropped almost 200, this was no mean feat: Amazon.com (AMZN) shares jumped 4% to a record high above $222 Wednesday, after the e-commerce juggernaut topped revenue and earnings expectations.

Amazon reported net income of $191 million, which was actually down a bit from a year ago. And it’s only a mild exaggeration to suggest that it could have posted a wet noodle on the bottom line and the market would still have slurped it up like so much gravy.

This is not a stock for investors who look at price/earnings ratios before buying. Amazon’s p/e based on this year’s expected earnings is 89, not that anyone really gives a damn.

No, what has the growth and momentum crowds so excited is the 51% revenue growth rate, proof that Amazon’s offensives across several technology and commerce fronts are paying off with top-line gains, if not yet a bottom-line bonanza.

In fact, Amazon might be the most dynamic tech company around. It’s riding the cloud computing craze for all it’s worth with online storage services for everyone from teenage music lovers to Fortune 500s. Its Kindle e-reader and, soon, Android-based tablet are encroaching on Apple’s (AAPL) turf. It’s adding streaming content in a potential challenge to Netflix (NFLX). And, of course, Amazon continues to squeeze bricks-and-mortars rivals like Best Buy (BBY), having already pulped Borders and many a neighborhood bookstore.

And all the while, the company is building out its unmatched distribution network and expanding to promising international markets such as Germany and India.

It’s remarkable how aggressively it’s investing in the future at a time when many other giants are sitting on their hands and on their cash. The value of Amazon’s fixed assets has doubled in a year’s time. Its headcount is up 53% over that span, to more than 43,000.

And meanwhile, the stock is up 21% in six weeks and more than six-fold from its late 08 low, which is why Amazon is getting called things like “the most competitive company ever”--the kind of hyperbole that ought to make buyers think twice even if the lofty price seems right.

Then again, as Stocktwits founder Howard Lindzon writes, “you can’t over-think momentum and Amazon is the poster child of investors over-thinking. Amazon CANNOT be valued. Not in a bad way either. If you are short, consider for a moment the possibility that Amazon is where WalMart (WMT) was in 1991, before its stock got going.”

Now, that comparison comes from a particularly bullish Morgan Stanley analyst who thinks Amazon is in fact a better company than Wal-Mart was the year its stock nearly doubled from a split-adjusted $7.50 a share. Morgan Stanley’s new 12-month price target for the stock is $275, up from $245 before the latest results and $225 just a month ago.

While Amazon’s revenue this year will surpass Wal-Mart’s from 20 years and grow faster, its estimated earnings of perhaps $1.1 billion will fall short of Wal-Mart’s $1.3 billion in 1991. And certainly Wal-Mart was valued at nowhere close to Amazon’s present-day $100 billion.

But let’s compare apples with Apple, as it were. While Amazon was recently earning its $191 million, Apple was pulling down $6 billion during its most recent quarter. And Apple’s revenues grew faster than Amazon’s, soaring 83% from a year earlier. Yet its shares are more than six times cheaper than Amazon’s based on the current year’s earnings estimates, which Amazon might edge but which Apple is highly likely to blow away.

Does Amazon deserve a premium valuation relative to Apple? Arguably, it would be harder to replicate its e-commerce efficiencies of scale then to invent the next Apple-killer of a device. So its economic moat may be higher. But it’s hardly six times as high. And its operating margin of 2% is a far cry from Apple’s 30%+.

Investing decisions have to be, in part, about the opportunity cost of picking one stock over another. In Amazon’s case, the cost of betting on future returns while Apple is already bearing so much fruit, while growing faster, seems too high.

Amazon’s momentum may shield investors from disappointment in the near-term, or maybe even for the next few years, as Lindzon argues. But the valuation provides little room for error in the event something goes wrong. With stocks like this, something eventually does.

Related Articles
  1. Markets

    The 5 Biggest Chinese Natural Gas Companies

    Read about the top five Chinese natural gas companies as measured by gas production volume and learn a little more about their business operations.
  2. Markets

    The 5 Biggest Chinese Insurance Companies

    Read about the top Chinese insurance companies by market capitalization, and learn a little about their positions in the marketplace.
  3. Insurance

    Top 8 Car Insurance Companies in New Jersey

    Read about the top personal auto insurers operating in New Jersey, and learn about recent trends in market share among these companies.
  4. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  5. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  10. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!