- Today, I ask the question: which is a better growth stock, AAPL or AMZN?
- Clearly, this is a complex question to address. I approach it from the perspective of (1) historical share price performance and (2) current EPS growth prospects relative to P/E.
Figure 1: Apple vs. Amazon: Which Is A Better Growth Stock?
Wired
(Read more from the Apple Maven: Apple Stock: What The Interest Rate Hike Means For Investors)
AAPL or AMZN: Which Has Done Better?
I have written recently about how a patient and lucky investor could have earned over 370,000% by buying Apple stock in 1982 and holding it until now. The implied annualized return of over 22% per year throughout the 40-year period has been impressive.
But how about Amazon stock? Has it done better than AAPL over time?
The comparison is tough because Amazon is a much younger company. While Apple IPO’d in 1980, the Seattle-based cloud and e-commerce giant has been trading publicly only since 1997. But we can still look at the question above from a couple of different angles.
First, let’s compare the performance of Apple stock vs. that of Amazon stock since 1997, when both companies’ shares of equity traded in the open markets.
The chart below shows that AMZN has produced only slightly more wealth for its shareholders over the past two and a half decades, Apple dividends considered. An initial investment of $1,000 in AMZN in 1997 would have been worth $1.18 million today vs. $1.08 million in the case of AAPL.
Notice that, had I asked this same question in 2021, the answer would have been different. As of November last year, betting on Amazon stock in the late 1990s would have produced about twice as much wealth compared to an investment in Apple stock during the same period.
Figure 2: Apple vs. Amazon portfolio growth.
But the comparison above may not be fair. Here, we are facing off a company that was more mature in the 1990s (Apple) against one that was a hot IPO around that same time (Amazon) and, hence, better suited for hyper-growth.
So, the second approach that I take is to look at the performance of Apple stock in the Cupertino company’s first 25 years as a publicly-traded entity (1980 to 2005). How does that compare to Amazon stock in the first 25 years of its own existence (1997 to 2022)?
- From 1980 to 2005, AAPL returned 13.3% per year. An initial investment of $1,000 would have grown to $22,700 in 25 years.
- From 1997 to 2022, AMZN returned 31.9% per year. An initial investment of $1,000 would have grown to $1.18 million in 25 years.
Keep in mind that comparisons are generally imperfect. In the case above, Apple’s 1980-to-2005 timeframe includes three recessions and one disastrous bubble burst – the dot-com crisis of the early 2000s. It also covers the early 1990s, a period when Apple nearly went bankrupt, while it excludes the highly successful iPhone years of 2007 and beyond.
AAPL vs. AMZN: Looking Forward
The above discussion centers around past performance. How about looking forward? Does Apple seem to be a better growth stock than Amazon, or is it the other way around? A long debate based on qualitative factors could be had at this point.
For instance: is Apple better positioned to capture the growth opportunities in consumer device and tech service consumption, the metaverse, and autonomous vehicles? Or is Amazon in a better place to expand its global dominance in e-commerce and cloud services?
Maybe I can address these issues in a future article. But for now, let me stick to the numbers.
According to YCharts, Wall Street currently sees Apple’s EPS (earnings per share) growing by a modest 11% per year through the next five years. The fairly slow growth trajectory can be justified by outstanding financial performance in the past three years, which sets a high base.
Amazon, on the other hand, is projected to grow EPS by a much more impressive 31% per year through the next five years. The company has been going through a rough patch in this post-pandemic environment, which potentially sets it up for a more pronounced rebound.
From a valuation perspective, Amazon is more expensive: next-year P/E of 50x vs. Apple’s much more de-risked 20x. Considering valuation and EPS growth prospects together, AMZN is looking much more like a growth stock today, while AAPL may resemble a value play.
(Read more from the Apple Maven: Apple’s App Store Drama: Should AAPL Investors Worry?)
Ask Twitter
In the Amazon vs. Apple comparison, the former is starting to look more like a growth play, while the latter may appeal more to value investors due to lower P/E and more modest EPS growth projections. Which do you think will perform better in 2023?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
