Simple Stock Analysis – Walmart (WMT)

   

Simple Stock Analysis – Walmart (WMT) simple money man

 

Chances are you’ve visited a Walmart at some point in time. There are locations in every single state in the US including Puerto Rico. Walmart is undoubtedly a retail giant. In fact, there are even Walmart Supercenters that offer groceries and so sell anything from apples to tires and everything in between.

 

I haven’t done a simple stock analysis in a while and this company sticks out to me because I visit it on a regular basis. I’ve even used their online platform for purchases in the past.

 

As with other analysis, please understand that I am not a licensed broker and do not have investment certifications or professional experience in stock selection. I also am not being paid by Walmart or its competitors to perform this analysis. Now let’s dive in!

 

 

WMT’s Brief History

 

Walmart began as Walton’s by Sam Walton in 1950. The name changed to Walmart in 1962. The company became public seven years later in 1969 with a stock price of $16.50 per share. As of 2017, it operates 4,672 stores throughout the United States.

 

 

WMT’s Financials

 

Revenue

WMT has a market cap of almost 275 billion. For the past three years, it’s revenues have been fairly consistent:

 

1/31/15 – 486B

1/30/16 – 482B

1/28/17 – 486B

 

Source: Yahoo Finance

 

Current Ratio

WMT’s current ratio which defines its abilities to pay is at 86%. This means that for every $1 of current liability, it ha 86 cents to pay it. This is not a great sign; however if managed properly with sales generation to the payment of accounts payable, it is manageable. I’ve found that other major retailers such as Target and Costco also have a current ratio of less than one so this may not be so uncommon in the industry.

 

ROE

WMT’s Return on Equity is 15.24%. If you subscribe to the philosophy used by billionaire investor Warren Buffett, you may not like this figure. He likes ROEs that are over 20% because those companies place returns back into the business in an efficient manner.

 

Last year, Mr. Buffett sold most of his shares of WMT and mentioned that retail is a hard business to be associated with. He further mentions Amazon and what a gigantic force it is in the retail and e-commerce space.

 

Free Cash Flow

As of the end of January 2018, WMT’s free cash flow is over $18 billion. This is important to have as it continues to make investments to accelerate its online business. In previous months it was over $21 billion and suggests it is actively making investments and paying shareholders.

Simple stock analysis WMT free cash flow simple money man

Source: Ycharts

 

 

WMT From Investor Perspective

 

WMT pays a dividend of 2.17% or 52 cents per share. The company has had 43 years of dividend growth so income to shareholders is not a problem. Also, the large cash pot mentioned should support payment of future dividends.

 

 

WMT From A Consumer Perspective

 

If you shop online, you may have noticed that many Walmart items offer free shipping on orders over $35. Many retailers ask you to spend $50 or more to qualify for free shipping. Returns are easy as you can order online and go to the store if an item doesn’t work out for you instead of printing a return label and mailing the item back.

 

And unlike other large retailers, I’ve never had an issue returning items even without a receipt. They’ve simply asked if there’s anything wrong with the product and either provided a refund or a gift card with the value of the item(s) I returned.

As previously mentioned, I’m a regular consumer at Walmart. There’s one five minutes away from my home. Whenever I go it’s busy, so now I try to go and get things on the weeknights and use the self-checkout line because it’s much quicker.

 

The bottom line is most of the products are cheaper than other retailers in my experience. I’ve compared many basic products with other places in terms of the specific brand and quantity of bread and milk to home air filters and televisions.

 

 

 

WMT Current and Future

 

The stock was down more than 10% on February 20, 2018, as it announced lower than expected earnings. However, WMT’s online sales sector increased by 23% in the past quarter and it’s taking steps to continuously compete with Amazon by closing some stores.

 

One may argue the P/E ratio of 24.67 could mean the stock is overpriced. When you compare this to Target (TGT), whose P/E ratio is 15.80; about 10 points lower. Nevertheless, WMT’s has performed significantly better over the past year:

 

simple stock analysis wmt walmart tgt simple money man

 

 

Source: Google Finance

 

P/E ratios from other large retail chains include:

 

Costco – 30.09

Kroger – 16.30

AMZN – 243.86 – You think the stock price just might be related to this J

 

So you can make the argument that WMT is sitting in the middle of all these competitors in terms of the P/E ratio.

 

By the way, WMT at 24.67 is very close with the S&P 500’s PE ratio of 25.70:

 

Personally, I’ve purchased items from https://www.walmart.com/ countless times and the process has always been smooth.

 

Although I didn’t pick up any shares of WMT due to my transition from an active to a more passive/index-fund oriented investment management strategy, the price does appear attractive and may provide room for growth.

 

 

On The Horizon For WMT

 

WMT has recently announced the home delivery of groceries. It plans to provide this service to 100 cities by the end of 2018. It’s already the biggest seller of groceries and if WMT can continue its low pricing model in the delivery space, this segment can also be capitalized upon.

 

 

Your Thoughts:

  1. Do you shop at Walmart?
  2. Do you own shares of Walmart?
  3. Would you consider investing in Walmart?
  4. If you’ve purchased items online from Walmart, how would you rate that experience?

 

 

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10 thoughts on “Simple Stock Analysis – Walmart (WMT)

  1. Hey SMM,

    Great analysis. Home grocery delivery could be a game-changer, since they’re already extremely cheap for groceries. I still haven’t conditioned myself to shop online at Walmart, though. I think if they can compete effectively with Amazon, they can probably continue at, or close to, the top of retail for years to come.

    Cheers,
    Miguel

    1. Thanks; yes that’s a big IF. Just this past weekend, we ordered groceries online and picked them up at the store. Mrs. SMM said it was super-easy, staff was friendly and recommended it to her family! I gave them a nice review online. 🙂

  2. Thanks for sharing this detailed analysis. My husband has a lot of Walmart in his portfolio. I don’t myself as an individual stock. When Mr. Buffett sells Walmart it gets you thinking!!

    I think Walmart is cheap to shop at but there’s not one closeby. We did shop Walmart when we were in Mexico though and it was great!

    1. Yes, Mr. Buffett’s sale got me nervous as well. For once I hope he’s wrong. Walmart is doing so much to drive online sales and it shows in its online platform so we’ll see if customers take notice. I’m fortunate to have one 5 minutes from home.

  3. Hey SMM!
    Years ago, I will admit, I did turn my nose up to Wal-Mart. It felt kind of grungy and it couldn’t compare with the shininess of Target. However, I would say after moving, and I can walk to a Walmart on my lunch break if I wanted to (dangerous), my perspective has changed completely. Perhaps the other store was under bad management (and I think it did get an upgrade/remodel) but the one I go to has been absolutely great. Love shopping at Walmart for all our toiletry AND grocery items. Yes, I’ve even got new tires there before.

    I also couldn’t believe how far their online game has come. We compare prices to a lot of platforms before buying, and Walmart has always been the same or less, AND offers free shipping. They have also been my favorite place to return items. And we are hooked on their Great Value items. We buy so much from the store – we should be investors!

    One would think I’m a spokesperson for Walmart- nope! Just nerdy excited…I could easily bang out a thousand word post on it, but I will wrap it up!

    Great compilation!

    1. Great value all day I say. It’s funny, the service at my local Walmart to has improved in recent years. It may be an overall shift in culture. Target is nice no doubt but at the end of the day it’s about price and value for me.

  4. Nice analysis SMM. I have a smallish position in Walmart and plan to hold for the long term. They have had a lot of competition with online competitors, but their investments in this area are starting to pay off. It’s hard to bet against Walmart. They are a well run company. Tom
    Tom at Dividends Diversify recently posted…Southern ComfortMy Profile

    1. I like to think of myself as an investor “on the ground.” I just recently completed an online survey of my pick up service and rated it very good overall.

      Walmart in this sense delivers to consumers and shareholders both. 🙂

  5. Even if it has a long lasting period, WMT does face some issues when it comes to online shopping and what it has to offer. Right now Amazon seems to be expanding at an accelerated rate and ofc that huge P/E is probably a good reflection on the future.
    My thought on investing in WMT is most probably no. I usually want to invest for a long period of time. It’s not because WMT isn’t currently doing well, but because I see this trend of Amazon of doing more and more and threatening to take more and more of the market share.

    1. AMZN is the big scary rival for WMT. And they are accelerating no doubt about it. I’m not sure if they have a pricing advantage however when compared with WMT. We’ll have to wait and see how effective each organization’s online marketing is probably in the very near future. Thanks for your feedback.

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