In a head-to-head comparison, it’s difficult to rank Walmart (NYSE:WMT) ahead of e-commerce giant Amazon (NASDAQ:AMZN) in terms of growth potential in the retail space. However, despite Walmart stock’s 28% rise so far this year, the firm still looks like a good choice for value investors. WMT stock has made huge strides in the e-commerce sector, signaling that AMZN may not be the top dog in online retail forever.
Gains in India
Walmart’s $16 billion purchase of Flipkart in 2018 looks to be paying off in India, where AMZN and Walmart (via its subsidiary, Flipkart) control equal shares of the e-commerce market. According to Citi Research, Amazon and Flipkart each controlled 30% of India’s online retail market. But data from a key shopping season shows Walmart has been able to erode some of AMZN’s position.
Specifically, data from RedSeer Consultingshowed that Amazon’s market share was just 22% during the nation’s festive shopping season. Walmart’s Indian subsidiaries had a 63% share.
Part of the reason for that could be the fact that Amazon has been focused on growing its physical locations rather than expanding its online presence further.
Consumers Stray From AMZN
Another nod to Walmart’s growing presence in the American e-commerce space was a new survey by First Insight showing that consumers were favoring AMZN less and turning to WMT more. The survey of 3,000 people showed that 55% of the respondents said they preferred to shop at Walmart over Amazon, an increase of 8 percentage points from the year before.
First Insight CEO Greg Petro noted that Amazon’s “novelty” is starting to wear off.
If nothing else, both data sets suggest that the e-commerce space is still up for grabs. While Amazon boasts more than 100 million Prime members around the globe, it’s clear that people are willing to look elsewhere for a better deal online. That’s the reason Walmart has been making huge investments in its online business, and those investments appear to be paying off for Walmart and Walmart stock.
Walmart has been experimenting with a service that allows its drivers to deliver groceries directly into customers’ refrigerators even when they’re not home. The firm has also rolled out a beer and wine click-and-collect service at some locations.
While those developments have certainly lifted WMT stock, they don’t guarantee a win over Amazon. AMZN has been beefing up its own grocery offerings by eliminating its $14.99 delivery fee for Amazon Fresh and adding same-day delivery in more and more cities.
Walmart Stock or Amazon Stock?
When choosing between Amazon and Walmart stock, investors should keep in mind that no matter which they choose, they’re investing in a solid company. Both firms have healthy cash flow. Although WMT’s debt levels have ballooned in recent years as the firm invests in its future, its debt is far from being unsustainable.
Right now Amazon is commanding a much higher price than Walmart stock, with a P/E of 80, versus the 25 P/E of WMT stock. Walmart also trades at just 23 times analysts’ average forward earnings estimate, compared to Amazon’s forward P/E of 66.
Walmart’s significantly lower price tag should appeal to value investors, and the firm’s 1.8% dividend yield furthers the long-term case for WMT stock.
The Bottom Line
While Amazon currently has the upper hand in online retail, Walmart’s management has made smart strategic decisions that have allowed the firm to grow into a formidable opponent in the e-commerce space. As the grocery battle continues to heat up, WMT’s compelling price advantage coupled with a growing list of convenient delivery options is likely to keep Walmart stock at the top of the pack.
In mid-November, Walmart is due to release its third-quarter earnings to increasingly skittish investors. For publicly traded companies overall. Q3 earnings season has been significantly more positive than most had been expecting, but a misstep could bring WMT stock price down when the results are released. However, if you can stomach a bit of risk and you’re a relatively long-term investor, taking a measured position in Walmart stock now isn’t a bad idea.
While Walmart may never overtake Amazon as the number one e-commerce retailer, the firm’s omni-channel investments and strong position in grocery mean it will likely remain a superpower in the retail space far into the future.
As of this writing, Laura Hoy was long AMZN.