E-commerce giant Amazon, Inc. AMZN has emerged as a potent threat to brick-and-mortar stores over the years, as purchases began to shift online due to the convenience it offers. Not to be left behind, traditional retail stores have set up their own online operations in a bid to stay afloat.
Against this backdrop, here’s a look at how shares of the two retail juggernauts, Amazon and Walmart, Inc. WMT, have fared over the past year.
AMZN vs. WMT: A Comparative Analysis
Going by the stock performance, Walmart emerges as the true all-weather stock. Even amid the market downturn in 2022, the Bentonville, Arkansas-based company’s shares have held their own, as seen from the flattish trend seen in the final quarter of 2022.
Amazon, meanwhile, had a lackluster phase during the same period, as it fell along with the rest of the tech stocks in the final stretch of 2023. Although e-commerce is Amazon’s core business, the company has other revenue streams in the form of Prime Video subscriptions, Cloud computing business, and hardware and services sales. Pitching Amazon against Walmart, therefore, may not be an apples-to-apples comparison.
More importantly, Amazon is valued as a tech stock and not as a consumer discretionary stock.
As risk appetite returned to the market, Amazon’s shares rebounded by much more than Walmart’s and were on a steady uptrend until July before a wave of selling set in the next two months. Walmart, meanwhile, remained as steady as a rock, amid the August-September sell-off. Walmart’s all-season appeal is due to it being a defensive consumer staple company, given its products will be in demand irrespective of the economic condition.
Over the past year, Amazon has gained 5.63% compared to Walmart’s 17.26% jump. But year-to-date, Amazon has risen a solid 50.67% compared to Walmart’s 14.86%.
Figure: Comparison of market price trajectory of AMZN and WMT over the given time period.
Chart courtesy of Benzinga
See Also: Best Retail Stocks Right Now
AMZN Or WMT: Which Offers Better Returns?
Given Walmart’s outperformance versus Walmart, it is a no-brainer that a $1,000 hypothetical investment in the retail giant would have left an investor richer than the one who may have chosen to entrust investment dollars to Amazon.
A $1,000 invested in Amazon a year ago would have grown to $1,056.25 by now, while the same $1,000 invested in Walmart in Oct. 2022 would be worth $1,172.62 now.
Figure: Comparison of scaled returns delivered by AMZN and WMT over a period of one year.
Chart courtesy of Benzinga
DO AMZN And WMT Often Move Together
Linear regression analysis, which gives the correlation between two variables — in this case, the stock performances of Amazon and Walmart, throws up a coefficient of determination of 0.729. The number suggests only a moderate correlation between the two stocks.
The lack of perfect correlation reflects the fact that the former is seen as a tech stock and the latter as one belonging to the consumer sector.
Figure: Linear regression analysis of AMZN and WMT to see if there is a correlation in how the stocks move.
Chart Courtesy of Benzinga
AMZN Or WMT: What About Dividends?
Seattle, Washington-based Amazon, founded by Jeff Bezos in 1995, went public in May 1997 at an initial public offering price of $18. The stock underwent four splits since then: a 2-for-1 split in June 1988; a 3-for-1 split in January 1999; a 2-for-1 split in September 1999; and a 20-for-1 split in June 2022.
The company does not have a dividend policy and has never paid a dividend so far. The practice is in line with growth stocks, which rarely pay dividends on the premise that they can grow investor wealth better by plowing the profits into some promising opportunities.
Walmart, meanwhile, is a consistent dividend payer. Walmart, founded by Sam Walton, opened the first Walmart store in Rogers, Arkansas, in July 1962. The company’s shares began trading on the NYSE a decade later, in Aug. 1972. It has been paying quarterly cash dividends to shareholders since it first declared a dividend in 1974.
In February, Walmart announced an annual cash dividend of $2.28 per share for the fiscal year 2024, representing a 2% increase from the $2.24 per share paid out for the fiscal year 2023. The annual dividend is to be paid in quarterly installments of $0.57 per share.
Figure: Comparison of how much dividends AMZN and WMT have declared over the past quarters.
Chart Courtesy of Benzinga
AMZN Or WMT: Which Offers Better PE?
The forward price-earnings multiple for Amazon is at 42.76, more than the IT industry’s 24.4 and the consumer discretionary sector’s 23. These comparisons suggest Amazon’s stock is overvalued. Growth stocks are invariably overvalued, given investors are willing to pay a premium for the future growth potential of the companies.
Walmart’s forward P/E is a more modest 24.14, but more than the consumer staple sector’s forward P/E of 18.2.
The forward P/E is a valuation measure based on the current share price relative to its estimated earnings per share for the next twelve months.
The price-earnings growth ratio, another valuation measure calculated by dividing P/E by the estimated earnings growth, shows Amazon has an attractive valuation, while Walmart is overvalued. Typically, a PEG ratio of less than one suggests the stock is undervalued and is a potential buy.
Chart Courtesy of Benzinga
What Analysts Think Of AMZN And WMT?
Analysts are bullish on both Amazon and Walmart, going by the consensus recommendations of “Buy” for both stocks. The average price target of analysts suggests Amazon has a higher upside potential than Walmart.
Chart Courtesy of Benzinga
Conclusion
Both Amazon and Walmart are 800-pound gorillas in the respective businesses they are in. The relative attractiveness of these stocks largely depends on how the economic environment plays out. An uncertain economic environment tilts the needle in favor of Walmart, given the goods it hawks are necessities that would be bought irrespective of how the economy does.
Walmart also appeals to income investors, who prefer stocks that can guarantee at least a minimum return by way of dividends. For these investors, capital appreciation is a bonus.
For those investors with a risk appetite, Amazon could be a better bet. With the Fed likely reaching the end of its rate hikes in the current tightening cycle and the economy expected to go from strength to strength, odds are in favor of the one-year-old bull market gaining further steam. If so, all stars could align for Amazon’s outperformance. More details on Amazon’s near-term performance could be gleaned when it reports its third-quarter results on Thursday after the market close.
Amazon ended Monday up 1.11% at $126.56 and Walmart gained 1.42% to $161.01, according to Benzinga Pro data.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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