Wal-Mart might finally be a better investment than Amazon
Published: Nov 17, 2017 6:35 a.m.
steamrolling the retail industry, but old-line Wal-Mart is hitting
back ó and producing impressive numbers
Wal-Martís online sales in the third quarter jumped 50% from a
mighty Amazon.com has been a game-changer, a disrupter, an online
retail pioneer that seems to be unstoppable.
old Wal-Mart Stores Inc.
WMT has a few tricks up its
sleeve. The Bentonville, Ark.-based companyís investments in its
employees, its online offerings and delivery, and its stores are
paying off in a major way. Investors in Seattle-based Amazon should
charts tell an interesting story. This 10-year chart shows how well
shares of Amazon.com Inc.
AMZN have performed against
those of Wal-Mart:
now a six-month chart, which reveals something has changed:
six-month returns are through Nov. 15, before Wal-Mart released
third-quarter results, which sent the shares up as much as 8%
Thursday. Wal-Mart reported a 4.2% increase in net sales from a year
earlier, with comparable sales (excluding fuel) rising 2.7% and
comparable foot traffic up 1.5%. Those are impressive figures for an
old brick-and-motor retailer, especially when itís the largest one in
the world, with revenue of almost half a trillion dollars last
Meanwhile, Wal-Martís online sales jumped 50% from a year earlier. And
online sales accounted for 80 basis points of the companyís 2.7%
increase in comparable sales. Thatís a heavy effect for a business
that the company had not traditionally been well-known for.
would you consider making an online purchase with Walmart rather than
Amazon? My own experience has been that it pays to look at both sites.
In one case, an item was attractively priced for $99 at Amazon, but
one had to be an Amazon Prime member to purchase it. I wasnít.
Walmart.com offered the same item for the same price with free
Another personal anecdote is that, at the three local Walmart stores
Iím familiar with, the companyís investment in improving its automatic
checkout service means I no longer have to wait in line. Not only are
there many more automatic checkout lanes, there is always at least one
employee (and usually several) hovering about and helping customers
through the automated process.
Wal-Martís shares closed at $89.83 on Wednesday and traded for 19.4
times the consensus earning estimate of $4.64, among analysts polled
by FactSet. In comparison, Amazonís shares closed at $1,126.69 and
traded for 142.1 times the consensus 2018 estimate of $7.93.
Amazonís price-to-earnings ratios have been similarly high for years,
showing that investors love the stock because of the companyís amazing
long-term sales growth and its ability to disrupt one industry after
another. In the third quarter, Amazonís sales were up 34% from a year
earlier, to $43.7 billion.
Amazon keep up this pace of sales growth for years? I donít know. If
you have a firm conviction that it can, and you are correct, Amazon
should continue to be a world-beating stock. But itís a tough act to
Another interesting thing to consider is that Amazonís market
capitalization as of the close on Wednesday was $542.9 billion, or 3.4
times its $161.2 billion in sales over the past 12 reported months.
Wal-Martís market cap was $268.3 billion, or 0.5 times its 12 monthsí
sales of $495 billion.
valuations, along with Wal-Martís online initiative and the improved
results of its stores, make it appear to be a less risky stock than
Return on corporate
Hereís another interesting way to look at the companiesí results over
the long term: return on corporate capital (ROCC). It was developed by
the Shareholder Forum.
companyís ROCC is its net income plus interest expenses and income
taxes, divided by the ending balance of total assets less total
liabilities other than interest-bearing debt. It is similar to return
on invested capital (ROIC), however, it is uniformly calculated using
GAAP data from annual SEC filings. You can look up ROCC for the past
five full fiscal years for individual companies
here, with each company
compared to its industry group.
Hereís the Shareholder Forumís ROCC information for Wal-Mart:
The Shareholder Forum
The Shareholder Forum
companiesí ROCC industry groups are the Standard Industrial
Classifications (SIC) from their SEC filings. Wal-Martís average ROCC
for the past five full fiscal years has beaten that of the
ďretail-variety storesĒ category. Amazonís average ROCC has trailed
that of the ďretail catalog and mail-order housesĒ category, and that
of Wal-Mart, by a mile.
sure, Gary Lutin, a former investment banker at Lutin & Co. who
oversees the Shareholder Forum in New York, has said ROCC comparisons
are most meaningful within industry groups and that ďspending what
could be booked as profits today in their development of goods and
services to make bigger profits tomorrowĒ will be reflected in a low
Amazonís approach has been worthwhile for a very long time, and its
patient shareholders have been well-rewarded.
Meanwhile, Wal-Mart is making a strong case that a traditional
retailer can succeed in the modern economy. And its numbers underline
a less risky long-term investment play. If you still believe in
Amazon, you might want to add Wal-Mart to your portfolio. If youíve
missed out on the Amazon story from your fear of its high P/E ratio,
or if you believe the company cannot possibly maintain its amazing
pace of sales growth over the next 10 years, Wal-Mart might be the
better play for you.
Philip van Doorn covers various investment and industry topics.
He has previously worked as a senior analyst at TheStreet.com.
He also has experience in community banking and as a credit
analyst at the Federal Home Loan Bank of New York.
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