I do not own either Amazon or AliBaba, but if I had to choose I would rather own BABA. Here are 5 reasons why:
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 a share. For each dollar of sales AMZN only makes about 5.5 cents a share.
BABA is growing revenues at a faster rate than AMZN is. In 2016, 2017, and 2018 AMZN had revenue or sales growth rates of 27%, 31%, and 32% respectively. For the same time periods the revenue growth of BABA was 29%, 48%, and 60%.
BABA 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 are considered a better value than stocks with with high PE Ratios. This is because investors are paying a lower price for the companies earnings. The current PE ratio of BABA is 35.20 while the PE ratio of AMZN is almost 3 times higher at 95.41.
AMZN is close to important resistance while BABA is not. In this 3 year chart of the two stocks, we can see that there is important resistance at the $2,000 level for AMZN. This is where the top was last September before a large selloff followed. BABA seems to have much more upside potential because it is further away from resistance than AMZN is.
Alibaba operates in a much friendlier domestic political climate than Amazon does. In China sometimes it is hard to even distinguish between what is the government and what is 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 calls from the Democrats saying that AMZN is a monopoly and should be broken up. If it looks like the Democrats are going to win the election, this will probably put pressure on the stock.