Walmart Hitting All-Time Highs on Sucky Numbers

Stock (Symbol)

Walmart (WMT)

Stock Price

$119

Sector

Data is as of

Expected to Report

Company Description

Sharek’s Take

• In 1962, Sam L. Walton and his brother J. L. “Bud” Walton opened the first Wal-Mart store in Rogers, Arkansas.
• By 1967, WMT had grown to 24 stores with annual sales of $12.6 million.
• By 1970, it was a publicly traded company, offering 300,000 shares to the public at $16.50 per share.
• In 1973, Wal-Mart expanded to Tennessee.
• In the early 1970s, shoppers clearly should have seen that the Wal-Mart concept was working: they would drive out of their way to shop at Wal-Mart. The company grew profits at 57% in 1971, then it backed up this growth with 49% growth in 1972 and 33% in 1973.
• An accounting change resulted in only a slight increase in profits in 1974.
• By 1975, it was time for the Wal-Mart train to start rolling again. 1975 profits grew an astounding rate 67%. The company, opening in states one by one, had 125 stores in operation and went through its third two-for-one stock split. By this time, annual profit growth was averaging better than 40% a year.
• By early 1982, it was obvious that Wal-Mart was a leader for the ages. Its ten-year profit growth rate was 39%. Forbes ranked it the number-one general retailer for seven years straight. Even after missing a twenty-fold gain since 1975, new investors would still make 100 times their original investment — had they held on.

This is my first research report on Walmart. The stock is one of the world’s safest, but the Est. LTG of 5% a year isn’t much. What’s nice is investors get a dividend yield of more than 2% and management has raised the dividend each year since 1975. If you add 5% hypothetical stock growth with a 2% yield that’s a total estimated return of 7% per year. That’s below the 10% I like in the Conservative Portfolio. But, Walmart is doing a good job competing with Amazon. Perhaps that means faster growth down the road?WMT is on the radar for the Conservative Growth Portfolio. I think the stock’s fairly valued right now.

One Year Chart

The Est. LTG of 5% isn’t high enough for me. But if profit growth could get up to 7-8% I’d be happy.

The 24 P/E is fair.

Earnings Table

Last qtr Walmart had -2% profit growth on 3% sales growth including 3% same store sales. Those numbers suck. E-commerce sales increased 37%, but I couldn’t find out what percentage online sales are of total sales.

This is my first qtr covering the stock, thus I don’t know if analysts have been altering Annual Profit Estimates.

Qtrly profit Estimates for the next 4 qtrs are 1%, 2% 2% and 2%. Although these numbers suck — currently — WMT has beaten the street by an average of 8 cents the past 4 qtrs. If it beats these figures by 8 cents it will deliver 8%, 8%, 9% and 9% profit growth — which would be pretty good!

Fair Value

My Fair Value P/E is 25. I think 30 would be too much for a 6-8% grower. This stock has limited upside, in my opinion. But I must say I think my assumptions are too conservative. My guess is WMT will do better than I think.

Bottom Line

Walmart (WMT) was one of the best stocks in history, then the stock went through a no-growth period, and has now firmly entrenched itself in another move higher.

But in the end, profit growth was just 3% a year during the last decade. That’s not much. A lot of the stock’s growth was because the P/E went from 14 to 24 from 2009 to 2019. And with single-digit growth looking like a possibility in the short-run, I just don’t feel this is a good investment at this price.

WMT is on the radar for the Conservative Growth Portfolio. I’d like to buy it if it comes down some.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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