The big difference between Amazon and Apple
- September 28th, 2011
Earlier this week we had a post up talking about the what seems to be low valuation for Apple ($AAPL) shares. We speculated that investors are holding back in fear of some disruption down the road to Apple’s business. We may have gotten that today with Amazon’s announcement of a slew of new Kindles including the Kindle Fire* which appears to be a viable competitor to the iPad.
Some analysts have commented that Apple and Amazon ($AMZN) are now the only true competitors in the tablet computing space, one which everyone seems to agree is going to continue to grow especially in comparison to the PC market. Apple is not going to stand still with increased competition from Amazon (hint price decreases). We have a bunch of links below that talk about the new Kindles.
There is however one big difference between Apple and Amazon. We are talking about the stock prices. They trade at wildly different valuations. They are in very different businesses but the valuation disparity is still striking. We have not adjusted the P/E ratios for cash on the balance sheet. If we did the disparity would be even more pronounced.
Amazon: $234/$3.21 (’12 estimates) = 72.9 P/E
Apple: $400/$32.58 (FY ’12 estimates) = 12.3 P/E
Source: Yahoo! Finance (as of Sept. 28, 2011)
You can also see how the market has been valuing Amazon over the past five years:
The point of this isn’t to say that Amazon is overvalued and Apple is undervalued. The two companies could be any combination thereof. The point is that the market is putting very different valuations on two companies that are now coming into closer contact and competition. How this plays out over time will be fascinating. The tablet computer business is now a big business and big money is betting on its outcome.
Items on the new Amazon Kindles:
Amazon takes the Android tablet market. (TechCrunch)
Kindle Fire vs. iPad 2 vs. Nook Color: a tale of the tape. (This is my next)
How big a threat to the iPad is the Fire? (SplatF)
Is Amazon losing $50 on every Kindle Fire? (AllThingsD)
The Kindle is an end-to-end service. (Wired)
The new Fire is run on the Cloud. (GigaOM)
The introduction of the new Kindles. (Bloomberg)
Tablet users are buyers. (WSJ)
*Affiliate link to Amazon.com. You know the drill.
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- What books Abnormal Returns readers purchased in August 2014
- Monday links: valuation moralists
- Top clicks this week on Abnormal Returns
- Sunday links: trusting the market
- Saturday links: financial karma
- Friday links: perception and reality
- Thursday links: a growth mindset
- Moving past the active vs. passive debate
- Wednesday links: for what ends
- Tuesday links: valueless portfolios