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Although traditional e-commerce and retailing may appear to be heading in different directions, Amazon E-Commerce Inc. (NASDAQ: AMZN) and the powerful Walmart Corporation (NYSE: WMT) enjoyed unprecedented business results in 2020.. Therefore, it is not surprising that both stocks outperform the market average this year.
To be clear at first, with Amazon the third most publicly traded company in the world by value, I would never bet on it. But the recent moves make Walmart the one I’d be most interested in buying today if I had to choose between the two.
With over 11,000 locations, Walmart is usually not that far away. This makes it a consistently convenient choice even if it isn’t consumers’ favorite place to shop (I wonder how many people would say they actually enjoy shopping there if they surveyed). The company is often the hitting the line for jokes. But given that Walmart has generated over $ 500 billion in 12-month revenue, this business is no laughing matter..
Here’s something we don’t have to wonder about because a survey has already been conducted: Market researcher Piplsay discovered that 11% of Americans signed up for Walmart’s new subscription service in the first two weeks it was available. The subscription service is called Walmart and it offers perks like free shipping and discounts on fuel.
However, only about half of the people surveyed heard about Walmart when taking the poll. This means that about 25% of people who have heard of Walmart’s new service immediately think it is worth it. On top of that, nearly half of people who have heard of Walmart but haven’t yet signed up are considering subscribing soon..
To me, Walmart is already anchored as a series of bricks and mortar shells that aren’t in danger of going anywhere: There are things we just need at a good price, and Walmart has them easily. But by launching Walmart, the company is taking an important step to stop ceding market share to e-commerce competitors. In fact, in a Piplsay survey, 19% of people actually canceled Amazon Prime due to Walmart .
At around $ 100 a year, Walmart won’t be boosting its profits meaningfully. Even 100 million subscribers will result in $ 10 billion in revenue, less than 2% of its current revenue. But the subscription service makes the company more relevant than ever. Expect to be a focal point when it reports quarterly earnings in November. 17.
I’m not suggesting Walmart is an amazon killer. It just prevents Amazon from becoming Walmart’s killer through its aggressive real estate expansion. Keep in mind that in the third quarter, Amazon announced 100,000 new full-time jobs mostly to hire 100 new facilities.. You do not employ that many people without expecting a large increase in the business.
But that’s expensive. As Motley Fool contributor James Bromley noted, in a recent article, the cost of fulfilling Amazon orders is growing faster than sales.. The company wants sales, but is forced to continue building the infrastructure to handle its record size. This is a feature of Walmart. It has a much easier same-day shipping route, as Walmart uses real estate it already owns.
Nevertheless, Amazon Web Services (AWS) continues to provide the profitable growth that investors crave. During the first nine months of 2020, AWS offered only 12. 5% of total net sales. But AWS net sales are up 30% over the same period in 2019, and this business sector has provided 62% of Amazon’s operating income.. In short, AWS is a strong asset and continues to grow at an amazing pace.
Since Walmart and Amazon are not the largest large capitalization stocks out there worldwide, I am personally interested in buying them today.. As we’ve seen with Walmart, even runaway success will struggle to trigger the needle of revenue growth: The more difficult these companies get. I don’t think business is doomed to failure. I just wonder how many years of superior market performance they can deliver.
But there is an additional obstacle to Amazon’s defeat of the market, at least in the short term. Over the past five years, the stock has mostly traded with a price-to-sales ratio of three to four. It’s currently approaching a P / S ratio of five. Ultimately, I expect the valuation to move towards a more historic benchmark, which may cause a decline in the stock’s performance in the market.
Walmart also trades at a relatively high valuation compared to the five-year benchmark, so the same risk of appraisal applies. But if Walmart’s investment today is behind the market in the short term, investors are at least accumulating a return that results in 1. 5% while waiting for the stock to outperform the market.
Market data backed by FactSet and the Web Financial Group.
Walmart, Earnings, Stock, NYSE: WMT, New York Stock Exchange, Finance
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