Amazon (AMZN) and Alphabet (GOOG), two of the world’s most recognizable brands and Wall Street’s most coveted stocks, have hit rough patches the last couple weeks after huge run-ups. Still, the long-term trajectory of each blue chip stock is decidedly up. But which looks like the better buy today, AMZN stock or GOOG stock?
Both stocks are now above $1,000 a share, though GOOG is teetering on the edge after its recent downslide. AMZN, in fact, is trading well over $1,100 a share! Despite the recent pullbacks, year to date, AMZN stock is up 51%, while GOOG has risen more than 29%. Over the last five years, AMZN has averaged a 42% return, GOOG has averaged a 22% return.
Those are some impressive returns, especially when compared to the 12.8% average return in the S&P 500 in the last five years. They’re the kind of returns that would make any growth investor happy. Now the question is: Can AMZN and GOOG repeat that performance over the next five years?
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It would be foolish to doubt either company at this point. That said, no stock continues to grow at such a breakneck pace forever. Just ask Microsoft (MSFT) and Apple (AAPL) shareholders. So chances are, one or both of these blue chip tech stocks will start to slow in the years ahead. Given that likelihood, I thought it might be a fun exercise to examine which four-figure stock is better positioned for future growth.
Here’s a closer look at AMZN stock and GOOG stock, broken into a few key numbers:
Tale of the Tape: AMZN Stock vs. GOOG Stock
Trailing P/Es: AMZN 288, GOOG 36
Forward P/Es: AMZN 141, GOOG 24
2016 earnings growth: AMZN 292%, GOOG 22%
2016 sales growth: AMZN 27%, GOOG 20%
Gross profit margin: AMZN 37%, GOOG 60%
Institutional ownership: AMZN 61%, GOOG 71%
That comparison tells us that AMZN is the far more overvalued stock, at least by traditional measures. However, it’s also the faster growing company, by a factor of more than 10-to-1 if you go by last year’s earnings. Both companies’ margins are healthy, though Alphabet’s (or Google’s) are healthier. And GOOG is the more widely held stock by Wall Street institutions, meaning AMZN stock may have more room to grow.
In other words, there’s a lot to like about both growth stocks, and a few things to dislike. GOOG probably has fewer red flags; while it’s growing at a much slower rate, 22% EPS growth is nothing to sneeze at. Amazon’s lofty valuation is a concern. But then again, it’s been a concern for years with no real repercussions: AMZN stock has traded at more than 100 times earnings since 2011.
Really, it comes down to personal preference. If you’re a value stock investor, GOOG probably looks like the safer buy. If you’re a growth investor, Amazon’s triple-digit growth looks mighty appetizing.
AMZN Has More Upside Potential
And since we’re talking about growth, I’d go with Amazon stock. It nearly doubled the return in GOOG over the last five years, is growing sales and earnings at a higher rate, and the valuation has yet to scare investors off. GOOG is less likely to suddenly go in the tank if the market turns sour or if demand for one of its many products declines. It’s the more mature company, with a more consistent history of steady growth.
But AMZN stock is more likely to double its $1,000-plus price tag in the coming years. Both Amazon and Google are great companies. But if you had to choose just one for your long-term portfolio, I’d go with AMZN.
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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This article is updated from an original version that was published earlier in 2017.