Three Compelling Motives for Acquiring Walmart Shares Without Delay
Walmart (WMT dropping by 1.95%) has emerged as the second-best performer in the Dow Jones Industrial Average this year, an unexpected turn of events given its less profitable status compared to the tech giants dominating the headlines recently.
While it does have a foot in some promising tech sectors, it primarily remains a retail stock, with its growth and earning potential limited due to the competitive market. Surprisingly, despite its impressive rally throughout most of 2024, the stock continues to appeal. Here are three reasons why.
1. Walmart is servicing more customers
Walmart has witnessed a 3% increase in shopper traffic during the third quarter compared to the previous year. This is a significant improvement, as even Target managed to expand at a slower pace of 2.4% during the same period.
Moreover, Walmart is now appealing to a broader range of demographics. While bargain hunters still make up the majority, the retail giant is also attracting higher-income shoppers through its e-commerce platform. This division has hit a milestone of $100 billion in annual sales and showed a robust growth of 27% in the recent quarter. As CEO Doug McMillon stated in mid-November, both in-store volumes, pickup services from stores, and delivery services from stores grew at a faster pace.
2. Walmart is enriching its coffers
Walmart's strategies are translating into substantial financial gains for investors. Its cash flow and profitability are on the rise due to factors beyond just market share gains. Walmart's e-commerce segment is now generating profits, a result of its decade-long investment in infrastructure. Price adjustments and inventory management have also contributed to its success.
Additionally, digital advertising is aiding in increasing profits. Overall, operating earnings are up by 9% in the past nine months, an impressive feat considering its massive revenue of around $700 billion annually.
3. Despite a high valuation, there's still profit potential for investors
Although the stock carries a premium price tag, it offers potential profits to patient investors. Walmart shares today are priced at approximately 1.1 times revenue, a significant jump from its traditonal valuation of 0.6 times revenue. Despite Costco Wholesale's steep valuation of 1.7 times sales, the valuation gap leaves room for gain.
Moreover, Walmart's status as a Dividend King should not be overlooked. It has boosted its dividend for 51 consecutive years, and its strong cash flow suggests more years of growth ahead. Management also has the capacity to invest in stock buybacks, even after investing in store remodels. Over the past four quarters, the company has bought back $4.6 billion of its stock.
Walmart stock may not be the ideal choice for every portfolio, especially for those interested in high-growth, high-profit companies. However, for investors seeking a holistic blend of growth, income, and stability, Walmart, the giant in this sector, remains an appealing option.
Investors looking to diversify their finance portfolio might find value in considerations of Walmart's stock, given its robust earnings growth. The company's e-commerce segment, with annual sales of $100 billion and a 27% growth in the recent quarter, is now generating profits, the result of a decade-long investment in infrastructure.
Money invested in Walmart's stock could potentially yield profits, as the company's status as a Dividend King with a 51-year streak of increasing dividends indicates a strong financial foundation. The high valuation of the stock might deter some investors, but its potential for growth, income, and stability makes it an appealing option for those seeking a balanced portfolio.
