About Walmart
Walmart is one of the prime examples of why America is truly the land of opportunity.
After his service in the United States Army, Sam Walton, the famed founder of Walmart became a manager of what was known as a Ben Franklin variety store in the mid-1940s at 26. The legend is that he received a sizeable loan from his father-in-law combined with some of his savings from the Army and purchased a variety store in northeast Arkansas.
After several positive and negative events transpired, Walton (and his brother, Bud Walton) rapidly expanded his retail business and by 1962, after many trials and tribulations owned as many as 16 stores concentrated throughout Arkansas, Missouri and other regions in the Midwest.
Eventually, from managing and operating local retail shops, Walton ventured out on his own and through all of his previous experiences, wins and failures, opened the first ever Walmart in Rogers, Arkansas.
The rest is history.
Literally, they have a Walmart museum in Bentonville, Arkansas.
Since its inception in the early 1960s, Walmart has become the largest retailer in the world.
In order to provide better context regarding the scale and global footprint of Walmart, here are some fun facts.
As of this publication they are the third largest employer in the world behind the U.S. Department of Defense and the People’s Liberation Army (China’s primary military).
Sources also explain that 90% of the population of the United States is within 10 miles of a Walmart and that 95% of shoppers in the U.S. made purchases at a Walmart in 2017.
In addition to its more than 10,000 stores, the company has more than 150 distribution centers, over 6,000 trucks in its private fleet and has made its founder’s family a lot of money.
Oh, and the retailer also owns membership-style retail behemoth, Sam’s Club.
Pictured above is founder of Walmart, Sam Walton
Walmart’s stock is of particular interest to our team given that the stock has taken a recent tumble after its latest earnings report.
The stock has since plunged by 12%.
The stock dropped mainly because of relatively poor bottom-line results induced heavily by inflation, inventory build-ups and cost increases.
While many wanted to run from the retailer’s stock, we saw the drop as an opportunity to pick up a few shares at a relative discount. The stock price (NYSE: WMT) hasn’t changed much after dropping down to around $125 per share. We like Walmart for the long-term, however let’s refresh ourselves and you on the company’s financials, fundamentals, threats and other objective facts about the company and whether or not the company’s stock deserves your consideration after its recent earnings decline.
Walmart’s stock financials
Did we mention that Walmart is huge?
So huge that they currently have a market capitalization of just north of $355 billion.
For some other introductory metrics related to the company, Walmart’s stock currently has a price-to-earnings (P/E) ratio of around 27.20 which means that the stock is modestly overvalued. However, let’s try to figure out whether or not the stock is worth paying a slight premium for and if the company’s numbers are as strong as we assume they are.
For the dividend lovers of the world, the company currently offers shareholders an annual dividend of $2.24.
Turning over to the company’s balance sheet, Walmart oversees around $245 billion and total liabilities of nearly $162 billion in total liabilities. This is a pretty strong financial base for such a large retailer with so many operations across the country and around the world. Our team initially assumed that their total liabilities would’ve been a lot higher but we were pleasantly surprised when the company’s total assets were considerably higher than their total liabilities.
Moving onto the company’s income statement, Walmart’s total revenue since 2018 has been steadily rising. Specifically, the company’s total revenue in 2018 stood at around $500 billion, since extending to around $514 billion in 2019 and moving all the way up to nearly $573 billion in 2022.
Our team is encouraged that the world’s largest retailer is still finding ways to grow its revenue and not stagnate for years on end.
Walmart’s stock fundamentals
Aside from many positives so far, let’s see if the company has the ability to turn a profit when compared to its competitors. As most people might already know, the retail industry as a whole is brutal to operate in (yes, even if you’re Walmart), as its very competitive, forcing companies to adapt and change their business models every waking hour of the day.
Since this is the case, it makes sense that the company’s trailing twelve month net profit margin is almost exactly that of the industry average.
That’s just how retail is.
However, as briefly mentioned before, Walmart has scale.
While this doesn’t necessarily have a major impact on their profitability (although it definitely does to a certain extent), it puts the company in a good position to continue growing and stay ahead of the competition and win customers all across the country.
As it relates to their annualized returns, the company’s return on equity, assets and investment are all slightly below the industry average which is not the best and not the worst. After all, there are perks and drawbacks to being the world’s largest retailer. For instance, there are a lot of moving parts that could both increase or decrease the company’s overall efficiency and ultimately impact its returns, however the company has been making strategic moves to fend off the threats of retail’s worst nightmare, Amazon.
One thing the retailer has recently implemented is robots. Whether it is good or bad for the workforce or humanity as a whole, it’s probably good for Walmart and its stock in the long run to aggressively integrate technology into its distribution centers in efforts to increase efficiency.
Walmart has also been working on using robots in its stores. Specifically, the linked video shows a robot scanning items on shelves, probably ensuring there are enough items in stock while verifying which items need to be reordered as well as an autonomous cleaning vehicle that cleans the floor.
The company has also made strategic moves with its somewhat recently added pick-up feature, not to mention it has more recently been embarking on drone delivery across the nation and it’s new premier subscription offering, Walmart+. Oh, and the company has also taken it upon itself to charter its own ships to ensure its customers receive products in a timely fashion, especially during the peak of the recent supply chain crisis.
Suffice it to say Walmart seems to be doing a lot of investing when it comes to becoming more efficient, agile and more appealing to the consumer.
While it is true that Amazon is a considerable threat to Walmart and the retail industry as a whole, the aforementioned moves that Walmart is currently making (among many others) seem to be strong investments that will allow the company to stay ahead of the competition in the retail space as well as make it somewhat challenging for Amazon to run Walmart out of business.
Walmart during COVID-19
It should also be noted that throughout the course of the pandemic, Walmart’s share price faired pretty well as consumers looked for PPE (personal protective equipment), less expensive merchandise and food and convenience at a relatively low cost, all of which Walmart provided and still provides.
This is one of the reasons our team is bullish on the company’s stock for the long run.
Aside from pharmaceutical companies, any publicly traded company whose share price generally increased during the brunt of COVID-19 is likely well-equipped to handle any further domestic or macroeconomic disturbances moving forward.
Walmart is in a unique position in that their prices across the board are relatively low and as previously mentioned, their stores are in close proximity to the vast majority of the U.S. population. When recessionary periods draw near or there is general economic uncertainty, our team thinks people will turn to Walmart as a safe haven for purchasing the essentials they need.
Should you buy Walmart stock?
While this company’s stock isn’t likely to generate a substantial amount of returns over the next year or two, our team thinks it can be seen as a relatively safe place to store money during times of both economic boom and bust.
Given all of this information, the recent drop in share price, the recession-proof nature of their business and relative scale of their operations, we give Walmart a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.