PE calculation : amazon vs microsoft - what am I missing?

S

smcoder

From tradingview's financials data I see the following

Price
MSFT -> 170.23
AMZN -> 2008.72

Net Income (FY) aka earnings
MSFT -> 39.24B
AMZN -> 11.588B

Price to Earnings Ratio (TTM)
MSFT -> 30.0769
AMZN -> 81.2760

Prices are latest, net income is on the fiscal year and PE is calculated on the trailing 12 months so they might not match perfectly but what I'm missing is how a company (AMZN) priced 12 times the other (MSFT) that has a net income more than 3 times less than the other ends up having a PE that is just below 3 times the other's.

What am I missing?


Thanks,
sm
 
Year over year and expected growth of sales and earnings. An investor pays a multiple based on expected future earnings not past. High growth companies generally attract higher multiples.
 
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There is a certain segment of the investing population that believes trees grow indefinitely into the sky, and that one day Amazon will own >50% of all retail sales in the United States, and by one day we will all own an Amazon fridge that automatically signals when you are out of milk to Amazon robots that automatically move goods through warehouses and Amazon drones that automatically deliver to your doorstep 20 minutes later - no human payroll expenses needed.

Under such a scenario, it is possible to come up incredible future earnings expectations. The trouble of course, is that constantly delivering a >20% revenue CAGR becomes harder and harder as the numbers get bigger an bigger...for example, starting at $360B in annual revenue, means that next year Amazon will need to find a way to duplicate this years sales, plus add an extra $72B per year to it's topline sales number. Which is the equivalent of almost 3X Starbucks annual global revenue. This is how much new business Amazon must generate just to keep the CAGR story going. Good luck with that.
 
SteveM- I was not providing my opinion as to whether growth stocks are better than older mature companies. I was not providing a formula as best to compare them. I was just answering the question.
 
smcoder said:
From tradingview's financials data I see the following

Price
MSFT -> 170.23
AMZN -> 2008.72

Net Income (FY) aka earnings
MSFT -> 39.24B
AMZN -> 11.588B

Price to Earnings Ratio (TTM)
MSFT -> 30.0769
AMZN -> 81.2760

Prices are latest, net income is on the fiscal year and PE is calculated on the trailing 12 months so they might not match perfectly but what I'm missing is how a company (AMZN) priced 12 times the other (MSFT) that has a net income more than 3 times less than the other ends up having a PE that is just below 3 times the other's.

What am I missing?


Thanks,
sm
More...
MSFT imo is the better buy with a lower PE Ratio, pays a dividend and has a greater net margin return as well as lower debt. AMZN is propelled by hype imo.
The public believe AMZN is a better buy because they are paying a premium via a higher PE, alas MSFT is more established and should have less volatility.

AMZN is black bars, below
index.png
 
Absolutely, Rob. You are spot-on. I was just giving my opinion to OP, didn't even notice your response before I answered. Cheers.
 
What I would find more interesting, as this is a trading forum, not long term investing, is which is a better trading vehicle for Intraday and swing trades? I would think it would be best to watch both growth stocks and the old guard for momentum and set ups and not stick to one.
 
@themickey I absolutely agree with you on msft being in a much better position to keep up the growth it's displaying. Anyhow my question was really about how are those PEs obtained having those prices and earnings and only now I realized that PE is really calculated on EPS not on earnings :)

Thanks
sm
 
AMZN will be a good short AT SOME POINT. Not yet. Wait till the TSLAQ-style news stories start coming out. That's when you know the big boys are positioning.
 
Since investors don’t want to be late to the game, they need to compete to get in first, and hopefully get out first.
Getting in first means using forward P/E, which for AMZN is “only” 52 for 2021 and of course just estimated, but that’s where there is also room for assuming your estimate may be better than someone else’s. Who would’ve estimated that TSLA won’t be bankrupt by now?

They can also make decision based on competitive analysis, meaning what other hedge funds at buying, while most of them are buying simply because they need to buy something, and there are only so many stocks available.
 
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