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Alphabet, Amazon Hovering Near $1000: Which Is the Better Stock?
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Strong earnings results from tech majors have been boosting the Nasdaq higher this week. The tech heavy index hit a record level for the second time this week on Tuesday, powered by expectations of a stellar earnings performance from Apple Inc. (AAPL - Free Report) which was scheduled to report earnings after the close.
On the whole, tech earnings for the first quarter released up to now have been robust. Among those stocks posting encouraging results are Netflix, Inc. (NFLX - Free Report) , Alphabet Inc. (GOOGL - Free Report) and Amazon.com (AMZN - Free Report) . The last of these two are also slowly but surely closing in on the $1000 mark and have recently hit record levels of their own.
Achieving such a level would be a key milestone for either stock, both of which are less than $100 short of the mark. Most analysts feel that Amazon is likely to win such a race. However, it may also be wise to consider which of the two is a fundamentally better stock. While Amazon has a Zack Rank #3 (Hold), Alphabet carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings History
Amazon.com’s fourth-quarter 2016 earnings per share (EPS) of $1.48 surpassed the Zacks Consensus Estimate of $1.03. Also, revenues of $35.71 billion exceeded the consensus mark of $35.39 billion. Quarterly revenues were above the guidance range of $33.25–$33.75 billion. The stock was up 1% in response to higher-than-expected first-quarter earnings. (Read: Amazon Beats Earnings and Revenue Estimates in Q1)
Coming to Alphabet Inc., first-quarter earnings of $7.73 exceeded the Zacks Consensus Estimate of $7.24. Also, earnings were up 2.2% sequentially and 28.4% year over year. Gross total revenue of $24.8 billion was down 5% sequentially but up 22.2% year over year. The top line beat the Zacks Consensus Estimate of $19.65 billion. (Read: Alphabet Beats Earnings & Revenue Estimates in Q1)
Considering a more comprehensive earnings history, both Alphabet and Amazon have delivered positive surprises in three of the trailing four quarters. However, Amazon is ahead on this count since its average surprise clocks in at 17.8%, higher than Alphabet’s level of 5.7%. Additionally, the last earnings surprise for Alphabet was 6.8%, significantly lower’s than Amazon’s level of 43.7%.
Price Performance
Shares of both Amazon and Alphabet have been strong performers this year, easily outperforming the S&P 500’s gain of 6.9%. However, with an increase of 26.3% year to date, Amazon has surged ahead of Alphabet, which is only up 18.2% over the same period.
Valuation
Here, we are utilizing the stocks’ Price to Earnings Growth (PEG) ratios in order to evaluate them from a valuation perspective. This is the most appropriate ratio since it takes into account the differences in growth witnessed among high growth tech stocks.
Additionally, it takes into account the future earnings potential of companies. With a PEG ratio of 4.07, Amazon is clearly pricier than the S&P 500. However, Alphabet is significantly undervalued, since its PEG of 1.64 is lower than the S&P 500’s figure of 1.87.
Gross Margin
Compared to other industries, tech companies have relatively higher gross margin levels. This is particularly true for those stocks which have higher brand value. The reason for such a phenomenon is possibly the lower volume of physical materials and smaller workforce required for such companies. But Amazon does poorly on this count, since its gross margin TTM is 35.6% compared to the S&P 500’s level of 48.3%. Alphabet excels when it comes to profitability, with a gross margin TTM of 60.7%.
Estimate Revisions
Alphabet stands out when considering estimate revisions. The stock’s earnings estimate for the current year has improved by 5.2% over the last 30 days. In contrast, Amazon’s earnings estimate has declined by 2.2% over the same period, making Alphabet the better choice on this front.
Conclusion
Our comparative analysis shows that Amazon holds an edge over Alphabet when considering price performance and earnings. However, when considering PEG ratios and gross margins, Alphabet is clearly a better stock. What clinches the case in favor of Alphabet is the fact that it carries it a Zacks Rank #1, far superior to Amazon's Rank #3. This is why it may be better to bet on Alphabet over Amazon despite both of them closing in on the $1000 mark.
Will You Make a Fortune on the Shift to Electric Cars? Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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Alphabet, Amazon Hovering Near $1000: Which Is the Better Stock?
Strong earnings results from tech majors have been boosting the Nasdaq higher this week. The tech heavy index hit a record level for the second time this week on Tuesday, powered by expectations of a stellar earnings performance from Apple Inc. (AAPL - Free Report) which was scheduled to report earnings after the close.
On the whole, tech earnings for the first quarter released up to now have been robust. Among those stocks posting encouraging results are Netflix, Inc. (NFLX - Free Report) , Alphabet Inc. (GOOGL - Free Report) and Amazon.com (AMZN - Free Report) . The last of these two are also slowly but surely closing in on the $1000 mark and have recently hit record levels of their own.
Achieving such a level would be a key milestone for either stock, both of which are less than $100 short of the mark. Most analysts feel that Amazon is likely to win such a race. However, it may also be wise to consider which of the two is a fundamentally better stock. While Amazon has a Zack Rank #3 (Hold), Alphabet carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings History
Amazon.com’s fourth-quarter 2016 earnings per share (EPS) of $1.48 surpassed the Zacks Consensus Estimate of $1.03. Also, revenues of $35.71 billion exceeded the consensus mark of $35.39 billion. Quarterly revenues were above the guidance range of $33.25–$33.75 billion. The stock was up 1% in response to higher-than-expected first-quarter earnings. (Read: Amazon Beats Earnings and Revenue Estimates in Q1)
Coming to Alphabet Inc., first-quarter earnings of $7.73 exceeded the Zacks Consensus Estimate of $7.24. Also, earnings were up 2.2% sequentially and 28.4% year over year. Gross total revenue of $24.8 billion was down 5% sequentially but up 22.2% year over year. The top line beat the Zacks Consensus Estimate of $19.65 billion. (Read: Alphabet Beats Earnings & Revenue Estimates in Q1)
Considering a more comprehensive earnings history, both Alphabet and Amazon have delivered positive surprises in three of the trailing four quarters. However, Amazon is ahead on this count since its average surprise clocks in at 17.8%, higher than Alphabet’s level of 5.7%. Additionally, the last earnings surprise for Alphabet was 6.8%, significantly lower’s than Amazon’s level of 43.7%.
Price Performance
Shares of both Amazon and Alphabet have been strong performers this year, easily outperforming the S&P 500’s gain of 6.9%. However, with an increase of 26.3% year to date, Amazon has surged ahead of Alphabet, which is only up 18.2% over the same period.
Valuation
Here, we are utilizing the stocks’ Price to Earnings Growth (PEG) ratios in order to evaluate them from a valuation perspective. This is the most appropriate ratio since it takes into account the differences in growth witnessed among high growth tech stocks.
Additionally, it takes into account the future earnings potential of companies. With a PEG ratio of 4.07, Amazon is clearly pricier than the S&P 500. However, Alphabet is significantly undervalued, since its PEG of 1.64 is lower than the S&P 500’s figure of 1.87.
Gross Margin
Compared to other industries, tech companies have relatively higher gross margin levels. This is particularly true for those stocks which have higher brand value. The reason for such a phenomenon is possibly the lower volume of physical materials and smaller workforce required for such companies. But Amazon does poorly on this count, since its gross margin TTM is 35.6% compared to the S&P 500’s level of 48.3%. Alphabet excels when it comes to profitability, with a gross margin TTM of 60.7%.
Estimate Revisions
Alphabet stands out when considering estimate revisions. The stock’s earnings estimate for the current year has improved by 5.2% over the last 30 days. In contrast, Amazon’s earnings estimate has declined by 2.2% over the same period, making Alphabet the better choice on this front.
Conclusion
Our comparative analysis shows that Amazon holds an edge over Alphabet when considering price performance and earnings. However, when considering PEG ratios and gross margins, Alphabet is clearly a better stock. What clinches the case in favor of Alphabet is the fact that it carries it a Zacks Rank #1, far superior to Amazon's Rank #3. This is why it may be better to bet on Alphabet over Amazon despite both of them closing in on the $1000 mark.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>