Investing in "Amazon" Without Paying a Premium

This isn't about waiting until Amazon is trading at a more attractive valuation. While that might be an effective strategy, this really isn't about Amazon.

Feb 18, 2014 at 4:00PM

Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are constantly making headlines for their innovative ways. This has led to significant stock appreciation for each company over the past three years: 87.66% for Amazon, 57.57% for Apple. 

Most articles you read on these two companies will pertain to new innovations that have the potential to continue to drive stock prices higher. This isn't one of those articles. Instead, we'll compare these two companies by the numbers (for the most part). And there is a catch. 

Paying a discounted price  
Amazon and Apple are two different companies with dissimilar business models. If you want to invest in Amazon (or a company performing similarly to Amazon) without paying a premium, however, then you might want to consider Apple. 

Amazon often finds itself toward the top of the list with anything relating to customer service, which has been a big reasons for the company's consistent top-line growth over the past five years. However, this is one of those very rare cases where another company has shown stronger top-line growth over the same time frame:

AAPL Revenue (TTM) Chart

AAPL Revenue (TTM) data by YCharts

Consider that Amazon and Apple are trading at 606 and 14 times earnings, respectively. Furthermore, Apple offers a dividend yield of 2.40%, whereas Amazon doesn't pay a dividend. This decision now becomes very simple.

When you see one company outperforming the other on the top line for a long time while trading at a more appealing multiple and paying a dividend, that's the company that should be at the top of your investment consideration list or watchlist.

While both companies are highly innovative, which should lead to sustainable revenue growth, Apple knows how to turn consistent profits. The company currently sports a profit margin 21.28%, considerably more impressive than Amazon's profit margin of 0.37%.

Amazon is now considering increasing its annual Amazon Prime membership fee by $20 to $40, up from the current $79 price. If Amazon doesn't increase its membership fee then it will continue to struggle on the bottom line, and Wall Street won't be impressed. If Amazon opts for the $40 increase, it will likely suffer a significant customer backlash. A $20 increase would be the most logical approach, leading to increased profitability while reducing the likelihood of a customer backlash.  

Amazon must also contend with Best Buy (NYSE:BBY), which now uses 400 of its retail stores for ship-from-store purposes. This has sped up delivery and refund speeds for online orders. While Best Buy's new initiative has the potential to steal market share from Amazon over the short term, it's not likely to have a major impact over the long haul. Amazon plans on opening distribution warehouses all over the country, which will lead to expedited deliveries. However, keep an eye on what takes place between these two companies when it comes to shipping speeds. Consumers are more demanding than ever, wanting their products ASAP. Therefore, whoever wins here will have an edge over the other.  

The good news is that when you invest in Apple, you don't have to worry about consistent profitability. This isn't to say that Amazon should be tossed in the junk pile when it comes to investment consideration. It's actually one of the most innovative and fastest growing companies in the world. It's just that when Amazon is compared to Apple, it steps down from its throne. 

The bottom line
Apple offers faster top-line growth over a five-year time frame, a more appealing valuation, and it pays a dividend. Apple is likely to present a better balance of growth potential and resiliency to economic downturns. On the other hand, there is a slight twist.

Over the past year, Amazon has delivered top-line growth of 16.37% versus Apple at just 2.89%. Therefore, Amazon should not be discounted as a potential growth investment; you will just have to accept more risk. Please do your own research prior to making any investment decisions.  

Invest ahead of the curve.... 
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.


Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends and Apple. The Motley Fool owns shares of and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers