- Walmart recently reported Q2 2016 results which made Walmart stock holders uneasy.
- The company missed analysts EPS consensus of $1.12 by 4 cents sending the Walmart stock further on a downward trend.
- The company's restructuring and growth strategy makes Walmart stock an attractive investment option for long term investors.
Walmart (NYSE:WMT) announced its FY16 Q2 results and there were sections that made stock holders squirm in their seats. Walmart failed to hit analysts consensus estimate of $1.12 for quarterly adjusted EPS reporting an EPS of $1.08. Interestingly, management has reduced its EPS forecast for the year by $0.30.
Note: You might also be interested in Walmart Stock Analysis Video.
It wasn’t all bad news because Walmart had growth in key markets, such as the US (3.5%), Canada (+3.7%), and China (1.9%). However, due to the rise of discount chain Lidl in the U.K, they took a -2.9% hit in this gateway to Europe.
Between the beginning of 2015 and now, Walmart’s stock has lost approximately 21% in value. This can be attributed to the fact that investors hold Walmart to a very high standard. It had a reputation as the ‘safe’ option to add to one’s portfolio.
And it still is.
Walmart has gone on a restructuring, and growth strategy spree. Consequently, new Walmart stores have been opened in Kenya and Nigeria in order to capitalize on the growing middle class in these areas. They have plans to open more in key African countries. And with Africa being touted as the ‘final frontier’ for solid economic growth, Walmart is investing in the future.
Moreover, Walmart knows that it has to do more in terms of technology or risk getting left behind; therefore, they have acquired 15 tech companies. A notable acquisition is Vudu, which has a similar value proposition as Netflix. It would be interesting to see what they do with it in the future.
Furthermore, Walmart has embarked on cost-cutting measures. For instance, in April 2015, they announced that they were cutting out middle management and offloading the day-to-day responsibilities of the role to other staff members.
Walmart’s ambitions don’t stop there. Recently, Walmart took full control of Chinese ecommerce giant Yihaodian. This is incredibly significant due to the sheer size of China’s population and the fact that Amazon has failed to fully exploit this huge market. Walmart will also hope that they can ‘borrow’ some ideas about running a Chinese ecommerce site and bring it to an international market. They could certainly do much more in the ecommerce space and have the economies of scale to do it.
For people new to Walmart’s stock, the less than stellar FY16 Q2 results may seem like a flag telling you to stay away. However, Walmart’s restructuring, and challenges in terms of increased competition was always going to cause an issue. The fact is their strategic movements are all coming together to create ‘lightning in a bottle.’ They are taking their time and clearly have a long term growth strategy.
I won’t suggest that you buy Walmart stock in order to get a quick return on your investment. It is a good addition to your portfolio if you have more of a long term investment strategy. All indications show that the situation with Walmart is simply the calm before the storm.