Which company is a better investment, Google or Amazon.com? Conventional wisdom suggests Google, which turns huge profits, enjoys better gross margins, and has a far lower price-to-earnings ratio. Yet Amazon’s stock has returned 62.6 percent in the past year, compared with 9.6 percent for Google.
That’s a phenomenon Steve Hanke, an economics professor at Johns Hopkins University, and Ryan Guttridge, a fellow there, have named the “Amazon Puzzle,” and one they say they’ve figured out. The key is hidden in asset turns, or how effective companies are at getting revenue out of their investments. Asset turnover is defined as sales divided by total assets; the higher the number, the better. “Google is just abysmal, and Amazon is really good,” says Guttridge, who once worked for legendary stock picker Bill Miller at Legg Mason in Baltimore.
