In a comparison between Amazon (NASDAQ: AMZN) and Target (NYSE: TGT) as investment options, analysts argue that Amazon is a better pick. This is due to Amazon’s higher multiple of 4x sales compared to Target’s almost 1x revenues, attributed to Amazon’s superior revenue growth, profitability, and financial position. The analysis considers historical revenue growth, returns, and valuation to support their stance.
Over the last three years, AMZN stock has shown gains of 20% while TGT stock has declined by 15%. While AMZN stock’s returns have been inconsistent, TGT stock saw returns of 31%, -36%, and -4% over these years. The Trefis High Quality Portfolio, which comprises 30 stocks, has consistently outperformed the S&P 500, showcasing better returns with less risk.
Despite the current uncertain macroeconomic environment, with high oil prices and elevated interest rates, both Amazon and Target are expected to trend higher. However, analysts believe that Amazon will likely fare better than Target in the coming months. Amazon has seen better revenue growth, with sales rising at an average annual rate of 14.3%, compared to Target’s 4.9% growth rate over the same period.
Target’s revenue has benefited from the shift to e-commerce, with convenient services for same-day business and purchasing changes brought about by Covid-19. On the other hand, Amazon’s revenue is expected to see healthy growth as it benefits from long-term tailwinds in the e-commerce, streaming, and digital ad industries, leveraging its dominant position in online retail sales.
In terms of profitability, Amazon has a slightly higher operating margin compared to Target, and also has a better financial position with lower debt and more cash cushion. Analysts believe that Amazon’s better revenue growth, profitability, and financial position make it the superior investment choice compared to Target, with an estimated valuation of $213 per share, reflecting a 7% upside.
While Amazon is expected to outperform Target in the next three years, it is important to consider how Target’s peers fare on metrics that matter. This analysis provides valuable insights for investors looking to make informed decisions across industries.
