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I try to keep investing simple. A stock price is moved by 3 things.

Earnings, share count, and how much someone will pay for that portion of the business (sentiment)
EPS x PE = stock price
To have you stock be worth more money at some time in the future you want a company to increase earnings, decrease share count, or have an improvement in sentiment. Hopefully all 3!

Let's look back to when I started investing in 2019 to current (TTM)

revenue 280 B to 485 B TMM
gross profit 114 B (40.9%) to 207 B (42.6%)
op profit 14.5 B (5.1%) to 15.2 B (3.1%)
interest exp 1.6 B to 2.0 B
investment income 832 M to 504 M
EPS 1.17 to 1.14
share count increased 9.95 M to 10.18 M
in 2019 $AMZN
PE 71-88 and share price between $79-101
in 2022
PE 44-109 and share price between $171-101

revenue 161 B to 278 B
gross profit 89 B (55.5%) to 157 B (56.7)
op profit 35.9 B (22.2%) to 82.4 B (29.6%)
interest exp 100 M to 360 M
investment income 2.2 B to 1.6 B
EPS 2.48 vs 5.45
share count 13.74 M decreased to 13.07 M
in 2019 $GOOGL
PE 22-29 and share price $54-67
in 2022
PE 20-24 and share price $101-146

Discussion.
IMO $GOOGL will outperform $AMZN in the next 10 years. Even though both companies revenue has increased 72% and 73%, respectively, over the last 3.5 years. Googles stock price has outperformed. This is due to its ability to improved op margins and therefore net income and decrease share count. Sentiment can always change but EPS and share count are facts. You can see Google's outperformance over my investing career without change in sentiment (PE ratio). I have read to ignore AMZN net income and EPS bc they include interest exp or income from investments. While that is true, a decrease in your investment income by 300 M over 3 years shouldn't have much a affect on a 500 B revenue company. If it does maybe you have bad margins and shouldn't command a premium multiple. In fact AMZN increase in interest expense increase more (400M) over this same period than its change in investment income. Google investment income also decreased by 600 M but it didn't affect its EPS bc of its op profit growth. Also because of Googles far superior free cash flow it was able to decrease share count by 5% while AMZN share count increased 2%.
Which will have a better stock price performance in this decade
35%AMZN
65%GOOGL

20 VotesPoll ended on: 8/31/2022

Ben's avatar
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