Amazon VS Walmart: We Reveal The Better Investment

These are two heavy weights in the US market. We’ve got the old school ever dominant Walmart against the new kid on the block in Amazon. By the end of this article you will have no doubt about which comapny is rhe better looking investment.

 

 

What They Do

Walmart operates in the wholesale and retail space. Their business model is focused on offering merchandise at everyday low prices. They’ve been known to be ruthless when negotiating with suppliers in otder to get the cost price down so the customer gets a better bargain.

The comapny has over 11,000 stores in 28 countries and e-commerce websites in 11 countries. 

Whilst Amazon started selling products online, they have grown well beyond that business model. They are now known for selling products and content with Amazon Prime giving people free shipping when the become a membership of Amazon Prime.

 

Whilst the company generates that majority of revenue from onlines sales, they are very much in the gane of big data. They know what you buy, what you watch and what you read. Oh, and wirth Amazon web servers, they know a lot more about how you behave online. 

Market Cap

To get a more indepth understanding of what the market cap is, have a watch of my short video on the topic here 

Wal mart has a market cap of $324bn and a current stock price of $114.37. This makes it one of the biggest companies in the world.

Amazon however makes this number  look insignificant as they have a market cap of $923bn and a stock price of $1,861

Valuation

To gage the valuation of a company looking at the P/E ratio is a great place to start. Here’s how these two comapnies look in comparison to the wider industry and overall market.

 

Walmart: 22.7                            Amazon: 80.8

Industry: 22.8                             Industry: 32.2

Market: 18.6                               Market: 18.6

Five Year High: 39.68                Five Year High: 540

 

The nest area to look at win terms of valuation is the Price to Book Ratio. This looks at the difference between the intrisnic value and the market value of a company.

Walmart: 4.5                             Amazon: 16.3

Industry: 2.3                              Industry: 3

Market: 1.8                                 Market: 1.8

What this means is that for every $1 in assets Walmart has, the market puts a value of $4.50 on that asset. The goal here is the lower the better and anything under $1 means the stock could be significanly undervalued. 

From a vlaution point of view, Walmart comes out in front.

 

Growth

The first place I like to head to for grwoth indicators is the Earnings Per Share (EPS). It’s not the only indicator but it a mahor one. Below is the current and future EPS estimates from top analysis

Walmart:                                               

2019: $5.03                                          

2020: $5.13 estimated                       

2021: $5.23 estimated                        

Amazon

2019: $20.88

2020: $27.37

2021: $38.93

Based on these numbers it looks like Walmarts EPS will grow by 3.9% over the next 2 years.

Amazon however, looks like it will grow by a massive 88%

To calculate the future stock price, we multiply the P/E ratio by the eanings per share. Therefore based on this data,the stock price of Amazon in 2021 could be $3,148 ($38.93 x 80.8).

That is of course assuming that the current p/e ratio remains at 80.8 which is unlikey. But it does gives a really good indication.

There is no doubt that Amazon win the growth category!

 

Assets and Debt

The final piece to the puzzle is look at assest (primarily cash) and the debt of a company.

A company that has zero debt, will never go bankrupt. And a company that has cash has a lot off opporutnity.

Let’s look net assets of each company and their net assets. This is what is the difference between their assets and liabilities. 

Walmart has a difference of $94.18bn. Meaning of they has to sell all their assets and pay dow  all their liabilitirs, they would still have $94.18bn reminaing. This is also referred to as book value. 

Cheeky Tip – If this number is lower then the market cap, the company is overlaued!

Amazon has a difference of $50bn. This is a fascaniting company becaise the have a market cap over $900bn but only net assets of $50bn!!

Amazon does have $44bn in cash compared to just $8bn for Walmart. 

Walmart is carrying far more debt ($55bn) comapred to Amazon ($25bn) and is further emphasised by the signficant difference in company size.

Becasue of the debt, I’m calling this section a draw 

 

 

The Overall Winner

This is a classic value investing vs growth investing argument. From a value invetsing point of view, Walmart wins hands down. Amazon is significanlty overvalued. 

From a growth point of view, it is Amaozon all the way.

But you didn’t read this far for a “sit on the fence” judgement. 

So, I’m  going with Amazon. The current economy favours growth stocks and Amazon has significant growth forecasts! The result in the increased stock price will be realised quicker with Amazon then it would with Walmart. 

 

 

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