WalMart (WMT) and Amazon.com (AMZN)
This can also be termed a tale of two retailers WalMart (WMT) and Amazon.com (AMZN). Amazon has a P/E of close to 40 while WMT has a P/E of 18. In this article, we will take a look at the two stocks and see which one is showing better growth characteristics and which one is a better buy at current prices.
In recent times, both WallMart and Amazon have come under media scrutiny for different reasons. WallMart is having problems with its size and there are also questions about the effect WallMart is having on America as a whole as its world wide revenues represent about 2% of U.S GDP. Amazon was an internet darling that has fallen on hard times because of intense competition and newer technology. There are concerns that Amazon is losing market share to other more nimble competitors. Amazon is in the retailing business but is priced as an internet business with a high P/E multiple.
First, I ran streetsmart's pricecheck calculator on both the stocks. http://www.smartmoney.com/pricecheck/index.cfm?story=worksheet
For WalMart, it yielded a price of 54 in five years and for Amazon it yielded a price of 18.88 in five years. The trend for WallMart is up and for Amazon, it is down. As one cant entirely rely on automatic calculators, we will take a look at the balance sheets to see how healthy the two businesses look and if WallMart is a better buy than Amazon.com.
First WalMart. WalMart has a P/E of 18. However, year over year revenue increases at WallMart are in 9.8% range and operating income growth in the 7.4% range. Stock holders equity grew at nearly 11% rate year over year. The increase in stock holders equity was helped by stock buy backs. WalMart had an operating earning percentage of 5.37% after all expenditures. In the most recently reported quarter, International growth for WallMart was about 12% while U.S growth was close to 9%. The international revenues made up of 20% of WalMart's overall revenue.
Amazon on the other hand has faster growing sales at the rate of 25% year over year. The increase in sales this year was partly helped by the Harry Potter sale. Gross profit increased by 30% compared to the prior year. However, the operating expenses rose faster than revenue and net income decreased. The net income before income taxes decreased by approximately 11%. The earnings per share in this quarter decreased by 46%. Year over year, earnings per share declined by 34%. The amazon.com profit margins are currently at 2.74% before income taxes which is much lower than WalMart. The stock holders equity in Amazon.com increased to six million in the most recent quarter from a negative of 227 million from the same quarter last year.
Although Amazon.com sales are growing faster than WalMart, its net profit margins after expenses are lower than WalMarts. In the web, it faces intense competition from EBay, Yahoo!, Google and eventually Microsoft. Amazon.com will have to spend more to improve its technology and the value of its portal will probably continue to decline. The decline is mainly due to the ascent of the search technology. One can just for a specific book or author and can eventually find the best deal for it in the web. The ability of this technology will reduce the value of Amazon's portal which is its biggest asset. Others such as Costco, Dell and WalMart are also entering the net and are selling their wares at low cost as well.
Looking at the two retails, WalMart is the clear winner. Its P/E, profit margins, cash flow and share holder equity growth are all superior to Amazon.com. WalMart while not as cheap as Berkshire Hathaway, is clearly a better stock to own compared to Amazon.com