Both Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY) have benefited from recent shifts in consumer shopping habits toward e-commerce and omnichannel, as well as from increased spending on technology. But which of the two consumer discretionary companies is the better investment today?

Best Buy store.

Image Source: Best Buy.

The case for Amazon

It's no secret that Amazon's retail business has surged during the pandemic as many physical stores closed -- some temporarily, others permanently -- and people spent more of their shopping dollars online. The ongoing need for social distancing continues to lead more people to continue with contactless shopping. The e-commerce behemoth also had a strong holiday season. Research company Numerator shows that Amazon was the big winner on Black Friday weekend, garnering 19% of total spend.

For 2020, analysts are estimating the company will report a 35% increase in revenue, up from its 20% increase in 2019. Amazon's earnings growth is also impressive. Its Q2 earnings expanded by 97% year over year and its Q3 by 192% . For the nine months ended September 30, 2020, earnings increased an impressive 68% year over year. This is even more impressive given increased expenses and hiring during the pandemic in 2020.  

When consumer behavior returns to pre-coronavirus norms, there will likely be a shift back to more in-person shopping -- and the consensus view among analysts is that this will slow down Amazon's e-commerce growth in 2021. However, the company still has other growth drivers that could boost its results.

In the third quarter, revenues from Amazon Web Services rose 29% year over year. Management said the segment saw "significant customer momentum," with new contracts from companies such as fintech giant Global Payments and biotech company Moderna.

CFO Brian Olsavsky sees growth continuing here, noting on the third-quarter earnings call: "We've seen a lot of companies extending their contracts with us. The backlog of multiyear deals has gone up quite a bit. So it's good from a customer connectiveness standpoint."

Another promising growth driver for the company is its digital advertising segment, which has seen strong results and is expected to keep gaining market share over the long-term. Revenue increased 51% in the third quarter. While the segment only generates half the revenue of AWS currently, it has potential. According to Cowen analysts, Amazon's ad revenue could reach an impressive $85.2 billion in 2026, or 13% of global digital ad dollars (excluding China ). 

The case for Best Buy

Best Buy has benefited from a few tailwinds from the ongoing demand shifts related to the pandemic. It has a strong omnichannel presence, which came in handy as online sales surged. Consumers spending more time at home are also putting more money into making those homes comfortable with such things as new kitchen appliances and home-theater products. And the rapid shift to working from home drove increased spending on technology.

The retailer's revenue increased by 21.3%  in its fiscal third quarter,  which ended Oct. 31, compared to 1.8% growth in the same period a year ago. Similarly, its domestic comparable sales rose 23%, a sharp acceleration from the 2% gain in the prior-year period. Like many competitors, Best Buy has seen a surge in online sales -- those were up 174% year over year in the third quarter.Fiscal third quarter earnings increased by 82% year over year, while second quarter earnings expanded by an impressive 58%.   

Best Buy still does consultations, but has pivoted from its prior pattern of doing them mostly in-home to in stores and online. And it has moved toward heavier use of curbside pickup, including options of scheduled pickups that help it manage wait times and social distancing. As CEO Corie Barry noted on the third-quarter earnings call: "For the much-anticipated gaming console launch earlier this month, we provided our preorder customers who had chosen the store pickup option the ability to schedule a specific time to pick up their product. This resulted in fewer crowds and lines and was hugely successful."

However, Best Buy may not be able to sustain these levels of growth as the pandemic is brought under control. Post-COVID-19, people will likely return to spending more on outside-the-home entertainment and travel. When it delivered its latest earnings report, Best Buy didn't provide definitive guidance. But management does anticipate that growth will slow, citing concerns about potential supply constraints and elevated unemployment levels.

The winning stock to buy

Although both companies are well-positioned in the current environment, Amazon appears to have better long-term prospects for growth once the world moves past COVID-19. While the exact timing is uncertain, many investors see the vaccine rollout and treatments as helping to ease related restrictions over the next 12 to 18 months. Even though Best Buy is trading at a more modest forward P/E of 16x vs. Amazon's pricier 62x forward P/E Amazon's fast-growing business segments beyond e-commerce make it the better investment from here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.