We believe that Amazon stock (NASDAQ: AMZN) is currently a better pick over UPS stock (NYSE: UPS), given its better prospects. AMZN stock is trading at a marginally higher valuation of 1.8x trailing revenues, compared to 1.5x for UPS. This slight gap in valuation can partly be attributed to Amazon’s superior revenue growth, as discussed below. Looking at stock returns, UPS, with a -17% return this year, has fared better than AMZN stock, down 47%. This compares with -17% returns for the broader S&P500 index over this period. There is more to the comparison, and in the sections below, we discuss why we believe AMZN stock will offer better returns than UPS stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of UPS vs. Amazon: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Amazon’s Revenue Growth Is Better
- Both companies posted revenue growth over the recent quarters. Still, Amazon’s revenue growth of 9.7% over the last twelve months is slightly better than 7.1% for UPS.
- Even if we look at a longer time frame, Amazon fares better, with its revenue rising at an average growth rate of 26.6% to $469.8 billion in 2021, compared to $232.9 billion in 2018, while UPS’ sales grew at an average growth rate of 10.8% to $97.3 billion in 2021, compared to $71.9 billion in 2018.
- For UPS, revenue growth over the recent years was driven by shelter-in-place restrictions during the pandemic, resulting in e-commerce growth, aiding its ground shipments. However, this trend is now cooling off, slowing delivery volume growth. For perspective, UPS saw a 14.5% rise in ground average daily package volume in 2020, but the growth slowed to 1.6% in 2021. For the nine months ending September 2022, the average daily package volume was down 3.5% y-o-y.
- Amazon’s revenue growth over the recent years was also driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in e-commerce growth. While this trend is cooling off, Amazon has more revenue streams, including online and physical stores, third-party seller services, subscription services, advertising services, and amazon web services (AWS) that aid its top-line growth.
- Furthermore, despite the current headwinds, the 2022 holiday shopping season appears to be off to a reasonably strong start, with consumers spending $107.7 billion online through November 28, reflecting 8.7% growth y-o-y.  This should bode well for Amazon.
- Our UPS Revenue Comparison and Amazon Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Amazon’s revenue growth over the next three years is expected to be better than UPS’. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 16.2% for Amazon, compared to a 6.3% CAGR for UPS, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. UPS Is More Profitable
- UPS’ operating margin of 14.3% over the last twelve-month period is much better than just 3.0% for Amazon.
- This compares with 11.4% and 5.8% figures seen in 2019, before the pandemic, respectively.
- UPS’ free cash flow margin of 13.9% is also better than 7.9% for Amazon.
- Our UPS Operating Income Comparison and Amazon Operating Income Comparison dashboards have more details.
- Looking at financial risk, UPS’ 13.2% debt as a percentage of equity is higher than 6.4% for Amazon, while its 16.4% cash as a percentage of assets is higher than the 13.7% for the latter, implying that Amazon has a better debt position and UPS has more cash cushion.
3. The Net of It All
- We see that Amazon has demonstrated better revenue growth and has a better debt position. On the other hand, UPS is more profitable and has more cash cushion.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Amazon is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 10% for UPS over this period vs. a 53% expected return for Amazon, implying that investors are better off buying AMZN over UPS, based on Trefis Machine Learning analysis –UPS vs. Amazon – which also provides more details on how we arrive at these numbers.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FedEx vs. Amerco.
With inflation rising and the Fed raising interest rates, among other factors, UPS stock has fallen 17% this year. Can it drop more? See how low UPS stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||-4%||-17%||76%|
|Trefis Multi-Strategy Portfolio||-3%||-20%||216%|
 Month-to-date and year-to-date as of 12/12/2022
 Cumulative total returns since the end of 2016