Just because some companies’ stock prices are flying high does not always mean they are a good investment. Smart investors should use publicly available information and their best judgement to determine whether a specific company is worth investing in. Coast to Coast Finance is here to help you with the publicly available information and a side-by-side comparison. In this edition we’ll compare two publicly traded companies and let you determine which is a better value, Alibaba Group (BABA) or Amazon.com, Inc (AMZN). We’re going to keep it simple and pit these companies against each other using standard financial ratios, with a clearly defined “winner” for each. Best of 7 wins this specific matchup, but as always, reach out to info@coasttocoastfinance.com or your Certified Financial Planner with questions before making any important investment decisions.
We already showed you how to calculate these ratios on your own, so instead of doing the detailed calculations again, we’re just going to show you the results using publicly available information found on Morningstar.com, here and here. You could find this info yourself in numerous other locations online. Plus, instead of writing up each one of these ratios we’ll present the winner first, and you can read on for more info.
And the winner is...
Alibaba easily looks to be a better value when compared to Amazon using these 7 financial ratios. Amazon only beats out Alibaba on one metric, Price-to-Sales. Keep in mind that all price-based ratios are subject to the market price of a stock on a given day; these ratios were pulled after the market closed on 4/26/21. Notice how both Alibaba and Amazon have high P/E ratios; maybe that’s because investors are willing to pay more now for future earnings. We also want to point out that most information found on BABA is shown in the local currency (CNY), and if you are in the United States the Alibaba stock price will usually be shown in USD. Make sure you are converting to the appropriate currency when you calculate ratios on your own. Lastly, Amazon is set to report earnings soon. As you can imagine, there is often significant stock price movement around the time that companies release earnings, since that’s when investors get concrete data, guidance from company leadership, and insights into how the business is performing. Watch for AMZN to report their earnings on April 29th, 2021.
If you have questions on any of these ratios or how to calculate them yourself, check out our other posts or send us a message. When you get started with your own analysis, try using these same ratios to compare two similar companies and determine which is a better value for you. Look at big names like Ford vs General Motors, or Wal-Mart vs Target.
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Happy trading!
This article is for educational purposes only and is not intended to be taken as investment advice. Members of Coast to Coast Finance own long positions in both BABA and AMZN. Coast to Coast Finance does not recommend buying BABA or AMZN. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.