EC HH Wal-Mart Just Isn't A Growth Company Any More

Data from S&P Compustat via Portfolio123.com and reflects Compustat standardization protocols; ratios based on Portfolio123 protocols. TTM = trailing 12 months

WMT is already fine relative to its peers, especially the smaller peers where some pain is clearly being felt. WMT is also good relative to AMZN. But AMZN is gaining ground. It’s not the return comparison per se. It’s about the comparison in the trend. AMZN is racing forward and WMT seems to be more or less standing in place.

Table 2 echoes this in terms of margins, one of the key drivers of return on capital. Interpreting it is a bit tricky because the differences between gross and operating margin depend on how companies classify different kinds of expenses as being more directly linked to specifically sold products or more in the nature of general overhead. AMZN, as a different kind of business, classifies things differently. So in terms of gross margins, compare WMT only to its peers. But by the time we get down to operating margin, the differences have been washed away and all columns are comparable.

Table 2

  WMT

 

AMZN

Peer Averages
All Mega Large Small
% Gross Margin – TTM 27.68 41.70 27.24 26.03 31.11 22.70
% Gross Margin – 5Y Avg. 26.57 35.04 27.25 26.46 30.73 22.81
% Operating Margin – TTM 4.65 3.01 4.08 5.59 4.65 1.23
% Operating Margin – 5Y Avg. 4.96 1.65 4.70 5.95 5.08 2.49

Data from S&P Compustat via Portfolio123.com and reflects Compustat standardization protocols; ratios based on Portfolio123 protocols. TTM = trailing 12 months

Compared to peers, WMT is OK. It’s not necessarily top dog but that may well be an inevitable aspect of its stature as a discounter of non-exotic ordinary products. But once again, we see that AMZN, a lesser performer today, is making rapid movement. Remember all those crazy bears a few years ago who howled and bleated about how AMZN should be shorted because of its rotten margins? Well, Bezos finally did what the bulls always expected him to do; he flipped the switch toward profit and WMT may be every bit as nervous as anyone unfortunate enough not to have covered a failed short.

Margin alone isn’t everything. Low margins are fine if turnover (i.e. volume) is high enough.

Table 3 explores this metric.

AMZN Peer Averages All Mega Large Small Inventory Turn – TTM

Inventory Turn – 5Y Avg. Asset Turn – TTM Asset Turn – 5Y Avg.

Data from S&P Compustat via Portfolio123.com and reflects Compustat standardization protocols; ratios based on Portfolio123 protocols. TTM = trailing 12 months

Here again, WMT isn’t necessarily top dog among peers. But considering that differences are influenced by different business models and product lineups and considering that turnover must be stirred in with margin to get return on capital, it does not appear that WMT should lose sleep relative to peers.

But once again, we see AMZN standing out for its forward movement.

Let’s round out the picture by checking some financial strength highlights. 

Table 4

  WMT

 

AMZN

Peer Averages
All Mega Large Small
Quick Ratio – TTM 0.20 0.77 0.59 0.60 0.46 0.77
Quick Ratio – 5Y Avg. 0.24 0.79 0.65 0.66 0.62 0.71
LTDbt 2 Cap – TTM 0.34 0.39 0.40 0.42 0.39 0.37
LTDbt 2 Cap – 5Y Avg. 0.33 0.38 0.34 0.32 0.36 0.34
Interest Cov, – TTM 9.39 8.47 20.48 17.72 40.58 -1.13
Interest Cov. – 5Y Avg. 9.68 5.19 30.37 24.38 50.83 5.93
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Disclosure: None.

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Cyrus Dariani 1 year ago Member's comment

I do not believe Walmart will be able to grow much further. They already have a negative stigma surrounding them with employee treatment. On the other hand, Amazon seems to have a much more positive stigma around it,leading me to believe it will eventually outgrow Walmart substantially

Bill Johnson 1 year ago Member's comment

#Walmart is horrible to both its suppliers and its employees. But are #Amazon and other companies really that much better? With the exception of a standout like Wegmans, any company that wields that much clout is going to use it. $WMT $AMZN

Angry Old Lady 1 year ago Member's comment

While I know #Walmart ($WMT) and #Amazon ($AMZN) treat its suppliers and employees poorly, I also know that means greater savings for me, so I'm okay with it. No one is forced to sell to, or work for, these companies. And no one is forced to shop there. I see no issues all around.