There have been numerous articles written about how Amazon.com is killing the businesses of many traditional retailers. The Wall Street Journal has written about brick-and-mortar companies they suggest might be ‘Amazon-proof,‘ while Barron’s and TheStreet.com have done the same. One could say that next to opining on the Federal Reserve’s interest rate policy, considering the impact of Amazon.com on various businesses has been Wall Street’s biggest obsession.
This is, however, not the first time that a relatively new business model has caused serious disruption in the retail space. Founded in 1962, Wal-Mart’s business model of large retail space dedicated to discounting and a wide selection of consumer goods caused serious pain for established retail chains such as Kmart, as well as grocers such as Winn Dixie and Food Lion*. Now it seems that it is Wal-Mart’s turn to suffer at the hands of Amazon.com, which is playing the role of disruptor.
I thought it would be interesting, therefore, to compare the performance of the two companies in their early stages. Amazon.com has been public only since May of 1997, giving us about 233 months of data. Wal-Mart first offered stock in 1970, but the stock didn’t trade on the NYSE until later in 1972. Given that my data for Wal-Mart stock go back only to November of 1972, I had to cheat a little bit to do the comparison, but I figure it’s close enough. From November 1972 through February 1992, Wal-Mart averaged 31.46% per year, which would have turned a $10,000 investment into almost $2,000,000. Conversely, in the first 233 months of public trading (through September), Amazon.com has averaged about 36.67%/year, which would have turned a $10,000 investment into almost $4.3 million dollars:
(data from Morningstar)
Amazon.com’s ride hasn’t been very smooth, however; the standard deviation of its returns has been 65%, and the maximum drawdown has been -93.06%. In the first 233 months of trading for Wal-Mart, the standard deviation of its returns was roughly 37%, with a maximum drawdown of -66.62%. Despite >30% annualized returns over its first 233 months as a public company, Wal-Mart’s trailing 12-month price-to-earnings ratio was roughly 38 in March of 1992. Conversely, investors seem to think that Amazon.com is the final say in retail business models as it trades at an astounding 208x last year’s earnings.
*Source: JP Morgan’s The Agony and the Ecstascy: The Risks and Rewards of a Concentrated Stock Position (2014)
Disclosure: Past performance is no guarantee of future results. Both the author and clients of Fortune Financial may hold positions in some of the securities mentioned.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Fortune Financial Advisors, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Fortune Financial Advisors, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.