I do not own either Amazon (NASDAQ:AMZN) or Alibaba (NYSE:BABA), but if I had to choose, I would rather own BABA stock. Here are five reasons why Alibaba stock may be a better investment:
Alibaba Has Higher Revenue and Operating Margins
First, BABA has much better operating margins than AMZN does. Operating margins are one of the most important things to consider when making an investment. Operating margin is the amount of profit a company makes on a dollar of sales after paying its costs.
According to marketwatch.com, AMZN has operating margins of 5.46% while BABA’s operating margins are 15.90%. In other words, for each dollar of sales, BABA makes about 16 cents per share. For each dollar of sales, AMZN only makes about 5.5 cents per share.
Second, BABA is growing its revenues at a faster rate than AMZN is. In 2016, 2017, and 2018 AMZN had revenue growth rates of 27%, 31%, and 32% respectively. For the same time periods, the revenue growth of BABA was 29%, 48%, and 60%.
The P/E Ratio of Alibaba Stock Is Lower
The third reason is that Alibaba stock has a lower price-earnings ratio. The PE ratio of a stock is the price of the share divided by the earnings per share. Historically, stocks with lower PE ratios have been considered a better value than stocks with high PE ratios. That is because stocks with lower PE ratios enable investors to pay a lower price for earnings. The current PE ratio of Alibaba is 48 while the PE ratio of AMZN is almost 100% higher, at 85.
BABA Stock Has a Better Chart, Political Environment
Fourth, Alibaba operates in a much friendlier domestic political climate than Amazon does. In China, sometimes it is hard to even distinguish between the government and the company. They are intertwined.
That is not the case here in the United States. As we get closer to the presidential election, we will hear the Democrats say that AMZN is a monopoly and should be broken up. If it looks like the Democrats are going to win the election, Amazon stock will probably be pressured.
The fifth reason why I would rather own Alibaba stock is because AMZN is close to important resistance, while BABA is not. In this three-year chart of the two stocks, we can see that AMZN stock is facing important resistance around its current price. That is where Amazon stock peaked last September before dropping sharply. BABA stock seems to be better positioned to rally because it is further away from resistance than AMZN is.
As of the time of this writing, Mark Putrino did not have any positions in the aforementioned securities.
