Don’t Expect Another 40% Rise in 2013 for Amazon.com, Inc. (AMZN)

Page 2 of 2

There are two classes of stocks we can compare to Amazon; the first of these is technology companies Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL), which compete with Amazon in consumer electronics. The forward P/Es here are 15 and 9, respectively. Google’s earnings have taken a hit with its addition of the troubled Motorola Mobility Holdings, but even its trailing multiple is 22 and of course its implied improvement is much weaker than Amazon’s. Apple actually trades at 12 times trailing earnings, so it should increase in price if the company is able to deliver any growth at all. It looks like a good value, and certainly a better buy than Amazon.

Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) are competitors with Amazon’s discount retail business. Target trades at a small discount to its larger peer, at 12 times forward earnings estimates as opposed to Wal-Mart’s forward P/E of 13; in both cases the Street expects modest increases in earnings in 2013. In their most recent fiscal quarter, each company reported moderate growth in net income compared to the same period in the previous fiscal year- Wal-Mart’s was the lower of the two, at 9%- and the stocks are cheap enough that the businesses don’t need to improve much going forward for the current price to make sense. They are certainly safer stocks than Amazon is.

In fact, for $1 worth of Amazon’s 2013 consensus earnings per share (essentially, $144, the forward P/E multiple), investors can buy nearly $3 in forward earnings per share from each of Apple ($28, 3 times the forward P/E), Google ($46), Wal-Mart ($38), and Target ($36). We don’t think that Amazon’s growth prospects justify that wide a spread in valuation, and expect it to underperform these peers.

Page 2 of 2