Amazon Shares Could Rise 25% on Wal-Mart Trouble

Yet, Wal-Mart’s revenues in the fiscal second quarter totaled $120.3 billion, compared with Amazon’s $23 billion, and Wal-Mart’s operating income totaled $6.07 billion, compared with $464 million at Amazon. Wal-Mart also pays a dividend yield of nearly 3% while Amazon pays no dividend.

One might argue that Wal-Mart is a blue-chip stock and its value is determined by providing steady returns to investors. Amazon is a growth stock, or at least it’s as much a growth stock as it can be after 20 years of selling goods over the Internet.

According to Morningstar, Amazon’s total return to date for 2015 is nearly 65% while Wal-Mart’s total return is a negative 22.8%. In 2014, Wal-Mart’s total return was about 11.6%, compared with a total return at Amazon of negative 22.2%. Over the past five years, Wal-Mart has outperformed Amazon twice, but the value of a $10,000 investment in Amazon would now be worth nearly $38,000 while a similar investment in Wal-Mart would be worth around $14,000.

Since 2010, Amazon has averaged total return growth of more than 25%, compared with 6.7% for Wal-Mart.

Amazon is set to report third-quarter results on October 22, and analysts expect the company to post a net loss of $0.13 per share on revenues of $24.91 billion. Wal-Mart, which reports its third-quarter results on November 17, is expected to report earnings per share of $0.98 on revenues of $117.95 billion.

Can Amazon add another 25% to its share price due to the flubs at Wal-Mart? Amazon’s big advantage is its diversity. The company’s Web services division posted operating income of $391 million last quarter, up from $77 million a year ago. That is practically the definition of a cash printing press. Wal-Mart has nothing like it, and trying to compete with Amazon in online commerce is not a winning strategy. There is little profit there, as Amazon has amply demonstrated.

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Wal-Mart has said it is investing some $2 billion in its online business over the next two years, but all that is likely to do is add pressure on profits. Investors judge Wal-Mart as a large and lumbering brick-and-mortar business while Amazon is viewed as a large and nimble technology conglomerate. Which would you rather invest in?