Why Now May Be The Time To Nibble On Wal-Mart Stock

  • Wal-Mart has lost one-third of its value this year while Amazon.Com has more than doubled its.
  • Wal-Mart’s pay raise has increased spending, and employment, among lower-income workers
  • Wal-Mart has $15 billion in operating cash flow per quarter to chase Amazon technology.

Walmart (NYSE:WMT) has become the IBM (NYSE:IBM) of retailing this year, a stock analysts love to trash and traders even short.

During 2015 the Bentonville, AR based retailer has lost nearly one-third of its value, 31.5% of it. This has taken its market cap from $246 billion down to $188 billion. Meanwhile Amazon (NASDAQ:AMZN), worth less than $150 billion at the start of the year, has blown by it, rising by 112% to $309 billion.

WMT stock chart

Wal-Mart stock and Amazon stock price comparison by amigobulls.com

This despite the fact that Wal-Mart brings in more revenue each quarter, $120 billion most recently, than Amazon will this year, even by the most optimistic estimates. This is also despite the fact that Wal-Mart is the second-largest e-commerce company, and that its Wal-Mart Labs has brought forward many technology innovations including an open source system called OneOps, designed to halt cloud lock-in, like that found by users of Amazon Web Services.

What really hacked-off analysts about Wal-Mart was CEO Doug McMillon’s announcement last month that it will double-down on those tech investments and spurn profit for the next two years, something Amazon did for a decade. "Wal-Mart thinks it is Amazon and it is totally not" ran one headline.

No, Wal-Mart is not Amazon. But it’s not IBM either.

  • Wal-Mart has plenty of cash flow with which to chase Amazon, $15 billion of operating cash flow last quarter alone, more than double what Amazon generates.
  • Wal-Mart has already begun a transition toward smaller stores, called Neighborhood Markets, to tap urban markets it previously did not reach.
  • Wal-Mart has over 6,200 stores worldwide, which if activated as delivery points could give Amazon a run for its money at low cost.

Perhaps more important is McMillon’s decision, announced in February, to start raising line workers’ pay. Given that Wal-Mart has 1.4 million employees in the U.S., and its move was countered by other large retail employers, this has produced a powerful stimulus to the U.S. economy, with many of the 268,000 private sector workers hired last month brought in specifically to serve the needs of low-wage earners, who now have more money in their pockets.

Right now Wal-Mart is dirt cheap. It sells at less than 42% of its annual sales, which is far less than its rivals. The company has a very low debt-to-assets ratio of 25%, which is not going to change. It has a plan, and the assets to act on it. And it has economic change in its favor – minimum-wage workers don’t buy from Amazon.com or even Costco (NASDAQ:COST) – they buy from Dollar General (NYSE:DG) and Wal-Mart.

What this tells me is that Wal-Mart could offer a very present surprise in its Christmas quarter, attracting new buyers of the stock, and could then be on its way to a very profitable transition.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and WMT stock

Do share this awesome post