eBay Inc (EBAY), Amazon.com, Inc. (AMZN): Why Is One of the E-Commerce Leaders Cheap and the Other Is Not?

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After all, it is completely acceptable for a company to trade at a sky-high valuation if its growth (and expected profitability) justify it. For example, in 2005 when Google Inc (NASDAQ:GOOG) was a new publicly traded company, shares traded at a P/E of up to 89 times earnings. This was fine because Google Inc (NASDAQ:GOOG)’s revenue growth and more importantly, earnings growth, justified this.

Back to Amazon.com, Inc. (NASDAQ:AMZN). A trailing P/E is meaningless on Amazon because the company actually lost money in 2012, but Amazon trades for 215 times this year’s projected earnings. While Amazon.com, Inc. (NASDAQ:AMZN)’s revenue growth may certainly justify this, their earnings growth and history of profitability (or lack thereof) does not. Amazon.com, Inc. (NASDAQ:AMZN) shows no clear pattern of earnings movement over recent history, and to be quite honest I find it amazing that the company has not figured out how to produce a decent amount of profit for its shareholders on the $61 billion in sales it had last year.

Buy, Sell, or Hold?

eBay Inc (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN) have similar revenue growth, and are the clear undisputed leaders in e-commerce in the United States. The big difference is not only does eBay trade at a down-to-earth valuation, it’s actually quite cheap. I think this recent pullback is an excellent opportunity to get into the best e-commerce investment at a great entry point.

The article Why Is One of the E-Commerce Leaders Cheap and the Other Is Not? originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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