Amazon (NASDAQ: AMZN) has made many of its shareholders millionaires in the several decades since it began selling books through its online marketplace. The tech giant has expanded to over $250 billion of annual product sales in that time while creating a massive services business anchored in the cloud enterprise software niche.
Amazon likely has more room to grow from here, but it would be understandable if you feel like you missed the boat on this tech giant. Its stock also lacks a few qualities an investor might prefer to see in their portfolio, like a steady dividend payment or a cheap valuation.
These things are available in another investment prospect. In fact, there's an established dividend giant that's earlier on in its e-commerce growth story. This company has a good chance at accelerating its sales gains in the coming years and lifting profit margins at the same time. And while there's little chance its market cap will quickly double or triple, there are some good reasons to like Walmart (WMT -0.08%) as an investment today.
The first $100 billion is the hardest
It might sound like a massive figure already, but Walmart's $100 billion of e-commerce revenue might just be a fraction of where it eventually lands in this huge global market. Consider its pace of growth, after all, which was 23% this past year. Amazon boosted its comparable business by 5% to $256 billion.
Customers are loving Walmart's convenient options to order and pay for your products through the online platform before visiting the store to get more-or-less immediate fulfillment. Amazon is working hard to approach that level of convenience through a dense delivery network and more points of physical presence in places like Whole Foods grocery markets.
Yet Walmart has an insurmountable advantage here in its network of more than 10,500 stores spread out around the world. Shareholders should benefit from the retailer's e-commerce demand, then, which is growing both through its Walmart product sales and its army of third-party sellers.
Profits and cash returns
You'll get plenty of direct cash returns from owning Walmart stock instead of Amazon. Its dividend yield is a bit modest, coming in below 1.5%. Higher yields are available in the retailing industry from peers like Home Depot and Target. But Amazon pays no dividend.
Furthermore, Walmart makes a heftier spending commitment to its stock buybacks. While Amazon has spent just $6 billion in the past two years on repurchases, Walmart returned more than double that amount via its own buybacks. Investors who prioritize these returns have every reason to expect Walmart to deliver more in the coming years. That's because operating profit margin is expanding, having recently broken past 4% of sales.
Why should you buy Walmart stock instead?
Walmart is of course very far along in its growth journey -- arguably more so than Amazon. Yet its success in tech-focused areas like e-commerce and digital advertising shows how the retailing titan can succeed in areas outside of its traditional core focus.
And you don't have to take on lots of risk to own this stock, which is valued at a price-to-sales ratio below 1. Investors are paying over 4 times sales for Amazon, the more traditional tech giant. Microsoft is valued at 14 times sales, for further context.
That valuation gap means you can benefit from Walmart's steady growth, its improving finances, and its direct cash returns. And your returns should be amplified as the retailer builds toward $200 billion of e-commerce sales in the coming years.
