Investing in E-Commerce Giants

 

Amazon has been the darling of the e-commerce sector in recent years, reaching the rarefied air of a $1 trillion market capitalization. However, other stocks in the sector such as Alibaba and eBay may be better investments in years to come and can return a profit for investors.

 

Can Amazon Keep Growing?

 

Amazon stock has been on a massive run over the past decade. Of course, had you bought the stock back in 2010, you would be sitting on riches today. The question is whether the company can keep growing, given that its stock has priced in many years of growth. Considering the company’s dominance of the market, there is no reason why Amazon cannot continue to give returns to its shareholders.

 

Alibaba

 

Alibaba has been called the “Amazon of China” and is a massive company in its own right. Alibaba is also an e-commerce giant and holds a similar position in the Chinese market to the one that Amazon has in the United States. While favored by investors, Alibaba trades at a more modest multiple of earnings.

 

How Alibaba compares to Amazon

 

In terms of a comparison of Alibaba vs Amazon, the Chinese company has considerable room to grow in terms of market capitalization. Alibaba has less than half of the market capitalization of Amazon, even though the two companies both dominate their market. Amazon is a much more expensive stock, trading at over 100 times earnings. Alibaba trades at an affordable 26 times earnings.

From a notional perspective, Alibaba actually earns roughly the same amount of money as Amazon. However, the stock is much cheaper. Some of this may be due to the markets in which the company operates. There may be a negative investor perception of the Chinese market, both due to the history of accounting problems with its companies and possible instability.

 

Which Stock Is Better to Own?

 

However, for investors looking to get an Amazon-type bump that is yet to come, they may be better off owning Alibaba. According to the experts at Money Morning, “..the Chinese company has more room to grow, both in terms of sales and market capitalization.”

eBay Has Been Overlooked

eBay is an e-commerce stock that has largely been overlooked by investors in recent years, and the stock has not broken out like Amazon. The company has not really diversified beyond its original auction platform despite its market position. As a result, the company is not viewed as a growth stock by investors.

While Amazon trades at over 100 times earnings, eBay trades at roughly 18 times its 2020 earnings. If eBay can diversify and broaden its base, the company can be a sound investment. However, the company needs to regain the magic that it had in the early days of the internet and offer more than its mature business line of auctions.

Investing in e-commerce stocks has been profitable for individual investors over the years. There is still more room for profit if investors choose the right stocks that have room to grow.

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