Will Amazon’s Stock Continue To Soar Above Peers?

by Trefis Team
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We think that Amazon’s stock (NASDAQ: AMZN) currently is a better pick compared to Walmart’s stock (NYSE: WMT). Amazon’s stock trades at about 3.9x trailing revenues, compared to around 0.7x for Walmart. Does this gap in the companies’ valuations make sense? We believe so. Both the companies have seen revenue growth over the last three years with Amazon growing at a much higher pace. With respect to operating margins Walmart saw higher growth over the last three years compared to Amazon. However, there is more to the comparison, which makes Amazon a better bet than Walmart at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Amazon vs Walmart: Industry Peers; Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.

1. Amazon Clear Winner On Revenue Growth

With Walmart’s fiscal year ending in January, its ongoing FY is 2022 while Amazon’s is 2021. If compared on the basis of the past three years, Amazon trumps Walmart in revenue growth. Amazon’s revenue was recorded at $443.3 billion in the last twelve months period compared to $232.9 billion in FY 2018 (a jump of 90%). On a comparable basis, Walmart’s revenue was recorded at $562.8 billion in the last twelve months period compared to $514.4 billion in FY 2019 (a rise of 9%). Further, for the most recent quarter (Q2’21 for Amazon and Q2’22 for Walmart), Amazon’s revenues jumped 27% YoY, while Walmart’s grew by 2.7%.

Due to the faster revenue growth of Amazon, it holds an advantage over Walmart as it is catching up quite fast with Walmart’s revenue base. This makes Amazon’s revenue growth impressive and hence makes it a better bet.

2. Amazon Edges out On Margins

Amazon’s EBIT margin was 6.7% in the last twelve month period compared to 3.7% for Walmart. Over the last three years operating margin for Amazon has risen by 0.6% compared to a 1.4% rise by Walmart. Though Walmart saw a better improvement Amazon holds the edge due to a higher margin, which coupled with Amazon’s higher revenue growth, gives it the edge.

Risk

Amazon has a better debt position, with debt as % of equity of 3% vs 11% for Walmart. Amazon has more cash cushion, with cash as % of assets of 25% vs 9.7% for Walmart.

The Net of It All

While Amazon’s trailing revenue multiple stands higher than that of Walmart, it has seen stellar growth in revenues over the last three years and has a higher operating margin compared to Walmart in the same period. Looking at the post-Covid growth, overall Amazon has fared better than Walmart. Over the last twelve months Amazon’s revenue growth was at 38% while Walmart’s revenue grew by 5.3%. Amazon also held the edge in EBIT margin which was 6.7% in the last twelve month period compared to 3.7% for Walmart. With regards to risk, Amazon has a lower debt-equity ratio and a higher cash-to-assets ratio than Walmart. Hence we believe Amazon has the potential to keep riding ahead, supported by strong financials and the gap in valuation could further widen over time. As such, we believe that Amazon is currently a better buying opportunity compared to Walmart stock.

While AMZN stock may move higher in the near term, there are several peers in its sector that look like a Better Bet Than AMZN Stock. Also, Amazon Peer Comparisons summarizes how the company fares against peers on metrics that matter.

 

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