Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT), Amazon.com, Inc. (AMZN): This Retailer is The Giant King

According to Amazon.com, Inc. (NASDAQ:AMZN)’s last earnings call, inventory increased 21%, and the amount of inventory sold during the period declined to 9.3 turns versus 10.3 turns from a year ago. Slower moving inventory doesn’t bode well for any company.

All of Amazon.com, Inc. (NASDAQ:AMZN)’s increased investments and expense-related to gaining an edge in technology and distribution lowers net income and free cash flow which distorts valuation measures such as the P/E ratio. This makes it difficult to evaluate whether or not Amazon’s stock is cheap or expensive.

On that note, Amazon’s 2011 profit margin of 1% turned into a loss equating to 0.06% of 2012 revenue. Amazon’s long term debt increased from practically nothing in 2011 to $3 billion in 2012, giving it a long term debt to equity ratio of 38%.

While Amazon currently dominates the scene with e-commerce, Wal-Mart and Target understand the increasing role of the internet. Wal-Mart plans to step up initiatives like having lockers to store products ordered over the internet. According to its latest earnings call, Wal-Mart’s online sales grew 19% internationally. Wal-Mart earned the Mobile Retailer of the year award. Target enhanced its capabilities on its sites as well. With that said, customers can live without Amazon if something happened to it. Target and Wal-Mart present increasingly compelling choices for the online consumer.

On the whole, Wal-Mart will continue to dominate the brick and mortar scene with its sheer size. Target will most likely remain in the No. 2 spot for quite some time, although its expansion plans will close the gap a little. Amazon’s cash balance will enable it to make some significant infrastructure investments; however, investors may not want to stomach the stock price volatility stemming from the resulting short term decline in profitability and free cash flow.

The article Wal-Mart: The Giant King originally appeared on Fool.com and is written by William Bias.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.