Barnes & Noble, Inc. (BKS) Turnaround?

Whether Microsoft buys out the Nook business or partners with Barnes & Noble, Inc. (NYSE:BKS), Microsoft will need to transition it from being a niche into a mainstream device that can be sold internationally. If it becomes a mainstream device that generates considerable profit margins, the company could earn a substantial amount of profit going forward.

Other investment alternatives

Amazon.com, Inc. (NASDAQ:AMZN) could be a compelling investment alternative. While the traditional book business is in decline, the digital format is certainly taking off. Amazon.com, Inc. (NASDAQ:AMZN) offers writers the opportunity to self-publish through Kindle Direct Publishing. Self-published authors earn a 70% royalty. It is efforts like these that put Amazon a little ahead of traditional media formats like Barnes & Noble.

The company’s growth isn’t isolated to product ideas like the Kindle Direct Publishing platform. It is most dominant in its core business of retail and cloud-virtualization services. Amazon in its most recent quarter was able to grow retail revenue in North America by 26% year-over-year. The company followed that success with 64% year-over-year growth in its Amazon web services (cloud).

Amazon is projected to grow its earnings by 37.1% per year over the next five years. The stock trades at a bit of a hefty valuation, but is reasonable when considering the historical and outward looking growth of the stock.

Conclusion

Barnes & Noble is a value investment that could be a little difficult for investors to wrap their minds around. For now, what’s pushing the stock price higher is falling costs related to the Nook, and the continued success of its college book campus business. Microsoft will either partner up with Barnes & Noble or buyout the Nook division altogether.

Amazon has been able to grow earnings historically and is projected to grow earnings exponentially over the next five years. Growth investors are likely to outperform the market with this investment.

The article Barnes & Noble Turnaround? originally appeared on Fool.com.

Alexander Cho has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Alexander 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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