Amazon vs. Walmart stock: which one is the better buy?

overview:

Amazon.com, Inc. (NASDAQ: AMZN) and Walmart Inc. (New York Stock Exchange: WMT) are the two largest retailers in the world by market capitalization.

Source: companymarketcap.com

On a strict retail revenue basis, Walmart is much larger than Amazon, with $600 billion in retail revenue. $280 billion for AMZN. Including Amazon’s non-retail business, Walmart is still the bigger of the two with his $600 billion in revenue versus his $502 billion at Amazon.

When it comes to online sales, Amazon is much bigger, with Walmart in second place. Note that WMT has more online gross sales than Home Depot, Target and Costco combined.

Of course, Amazon derives most of its profits from its cloud services entity, AWS. Later in this article, we break Amazon’s revenue down into retail and cloud services.

In this article, we compare AMZN and WMT to see which one is a better long-term purchase.

Key metrics for Amazon and Walmart stock prices

As you can easily see in the table below, Walmart is the larger company based on revenue (row 2). And for price/sales (line 3) walmart With a ratio of 0.7x to AMZN’s 2.0x, it looks like a much better value.

Gross profit (lines 5, 8, 9) is also interesting, as AMZN and WMT differ significantly in overall gross profit (line 5) from 43% to 24%, but in comparison, Walmart’s The GM share (37%) is higher than Amazon’s 22%. Market price (row 8).

This may suggest that Walmart has relatively lower prices compared to Amazon.

The PE ratio (line 11) is another metric where Walmart’s 27.3x PE seems to be underestimated compared to Amazon’s negative 970x.

The price relative to FCF (free cash flow) is walmart Clearly outperforming AMZN again. This puts the price/FCF ratio strongly in Walmart’s favor with a much lower ratio of 56x compared to AMZN’s negative -38.5x.

Walmart’s dividend rate of 1.6% (line 18) is higher than Amazon’s because it doesn’t pay dividends.

Based on current financial metrics, Walmart is performing better than Amazon.

Is Amazon a direct competitor of Walmart?

Amazon and Walmart compete in the online world, but Walmart’s biggest revenue source is groceries, and Amazon never competes with Whole Foods.

In the online world, Amazon sells virtually everything, while Walmart has a more limited selection.

A breakdown of Walmart’s revenue from the most recent 10,000 helps to better understand sales by source, with groceries being a major one.

What is the difference between Amazon stock and Walmart stock?

The big difference between the two companies is the amount of influence AWS has on Amazon’s bottom line. Note that the e-commerce profit margin is very small at 1.5% compared to AWS’ 28% profit margin. Basically, Amazon is a cloud service provider with a huge e-commerce division.

Walmart, on the other hand, is a retailer.

Are these stocks fairly valued?

Looking at analyst ratings for both stocks, Amazon and walmart Both are highly rated by analysts. Amazon has 73 buy recommendations and 4 sell recommendations.

Walmart, on the other hand, has 32 buys but only 1 sell.

Quants, on the other hand, don’t seem enamored with either, ranking both Amazon and Walmart with solid hold ratings.

What do quants know about Amazon and Walmart that analysts don’t?

Neither did well last year on a price return basis. walmartdeclines by only 1%.

Both of these stocks are more fairly valued today than they were a year ago. Still, is it reasonable enough to invest in 2023 given the risks of the global economy, rising interest rates and client hesitation?

Should You Buy Amazon Stock or Walmart Stock?

One of Walmart’s advantages over Amazon is a consistent share buyback program that has been in place over the years. Comparing the two companies’ shares, Walmart’s share has decreased by 19% over the past decade, while Amazon’s share has increased by 13%.

One concern with Amazon is that the FCF (free cash flow) has been significantly negative over the past two years. On a Trailing Twelve Month (TTM) basis, it was negative $26 billion. Over the past two years, the total has exceeded $40 billion.

Walmart’s FCF isn’t something to brag about, but at least it’s positive.

Amazon recently announced 18,000 layoffs, about 6% of its workforce. It doesn’t sound like Amazon expects a return in revenue any time soon.

Generally speaking, neither company has had a good year, and investment decisions should be based on significant improvements ahead.

I think Walmart has better conservative financial metrics and a more stable economic value proposition selling primarily groceries. Walmart is also buying back its stock.

Amazon still has serious margin issues in the large e-commerce part of the business, and the profitable AWS part of the business may struggle to keep Amazon’s past prices high. . Amazon’s price-to-sales ratio may struggle to hit previous highs, which limits future profits.

I rate Walmart Buy and Amazon Hold.