Have investors overreacted by selling WMT in response to the underwhelming earnings report? Is WMT still a solid investment because it is a traditional brick-and-mortar business with minimal tech investment?
The questions posed above are swirling through investors’ minds in the aftermath of WMT’s disappointing earnings. Let’s take a look at whether WMT is worthy of your investing dollars following its recent setback.
WMT appears to be slightly underpriced considering it has a reasonable forward P/E ratio of 24.20. The stock is trading nearly $20 below its 52-week high of $153.66. Though WMT’s recent quarterly earnings were certainly disappointing, part of the disappointment lies in the fact that investors are unhappy that the company’s leadership is calling for nearly $15 billion in capital expenditures. The company had $10.3 billion of capital expenditures in the year prior.
However, what matters most is WMT’s willingness to pivot. As time progresses, WMT is transitioning toward becoming a tech-centric omnichannel multinational conglomerate. The overarching aim is for WMT to provide diverse services under one roof, serving as an e-commerce marketplace, a health services provider, a financial services provider, and a traditional grocery store. This pivot somewhat parallels that of Apple’s (AAPL) shift toward services.
There is even the possibility that WMT will narrow its focus on e-commerce growth in the years ahead, stealing business away from Amazon (AMZN). If you aren’t bullish on WMT after analyzing its business flexibility, consider the fact that the company’s comparable-store sales increased 8.6% in the most recent quarter. Furthermore, WMT’s gross profit margin is also increasing.
The Analysts’ Take on WMT
If you are hesitant to invest in WMT following the recent dip, consider the opinions of the top analysts. The analysts have established an average price target of $161 for the stock, meaning it has a 16% upside to go. The analysts’ high target for WMT is $180. The analysts’ lowest price target is $120.
All in all, 32 analysts have studied the stock in-depth. A total of 36 analysts have issued recommendations about WMT. Of these 36, 16 recommend WMT as a Buy, a dozen recommend it as a Strong Buy and seven advise holding. No analysts consider WMT to be a Sell or Strong Sell.
WMT POWR Ratings
The POWR Ratings show WMT has a B grade meaning it is a Buy. The stock has an A grade in the Stability component of the POWR Ratings along with B grades in the Quality and Value components. You can learn more about how WMT fares in the Momentum, Sentiment, and Growth components by clicking here. Of the 40 publicly traded companies in the Grocery/Big Box Retailers space, WMT is ranked 10th. You can learn more about the Grocery/Big Box Retailers segment by clicking here.
Buy the Dip?
The pandemic’s tailwinds have helped WMT”s bottom line yet that momentum will eventually subside as the masses are gradually vaccinated and life returns to normal in the months ahead. However, as noted above, WMT is shifting toward self-reinvention as opposed to resting on its laurels and being content to sell products as a traditional brick-and-mortar retailer.
WMT’s partnership with Shopify to expand its e-commerce marketplace efficiency is working to perfection. Add in WMT’s partnership with The Trade Desk to improve its advertisements and there is even more reason to view WMT as a growth story as opposed to a value stock. The bottom line is WMT has a track record of growth success, delivering more than two dozen consecutive quarters of comparable sales growth.
It is interesting to note WMT is pulling out of particularly challenging markets such as the United Kingdom and Brazil while hiking investment incomparably high-growth markets such as India. In fact, WMT has acquired a majority stake in Flipkart, one of the top e-commerce businesses in India. Add in the fact that WMT has established a stake in the e-commerce superstar of JD.com and investors have even more reason to be bullish about the company’s long-term growth potential.
Though WMT revenue has increased by a mere 13% across the past half-decade, there is the potential for this figure to move significantly higher thanks to the WMT executives’ focus on growth. Buy the dip, hold for the long haul and you will likely be quite happy with the return as WMT continues to evolve.
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WMT shares rose $0.03 (+0.02%) in premarket trading Wednesday. Year-to-date, WMT has declined -6.02%, versus a 3.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…
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