Source: PaxForex Premium Analytics Portal, Fundamental Insight
Over the years, Walmart has become the world's largest retailer, making investors very wealthy. Walmart's size, scale and reach make it one of the most popular stocks among investors. But the retail environment is changing, and Walmart has faced several obstacles that may make investors wonder about its future. If you're wondering if this company is a worthy investment today, here's a more in-depth review.
Walmart is primarily known for its everyday low prices offered at supercenters, discount stores, neighborhood markets, and Sam's Clubs, and serves a wide range of retail customers. The retail sector, including Walmart, was hit hard at the start of the pandemic. But earnings for 2021 show that Walmart has more than recovered, with sales up 6.4% and e-commerce sales up 11% year over year.
The company's total revenue for 2021, including in-store sales and real estate rental income, was up 1.6% after accounting for changes in currency exchange rates. While 1.6% is not huge, it is solid growth given Walmart's size.
Many people think that being the biggest is the best. Of course, Walmart has some advantages, such as being able to cut profit margins to gain a competitive advantage over competitors when it comes to pricing, inventory, or distribution. But being the largest also means it can be difficult to grow.
Walmart has 210 distribution centers that help serve 10,500 stores in 24 countries. That's certainly a huge portfolio, but it's smaller than in the recent past. In 2021, Walmart made $32.7 billion in business, store sales, and investments, mostly internationally. This is part of Walmart's larger plan to reduce risk in less efficient markets and increase capital savings, which will likely pay off in the long run.
However, the company still needs to find ways to increase its revenues. Walmart is trying to attract and retain new customers by redesigning stores, improving the e-commerce experience, and expanding into the meta-universe, but with such low margins in the discount retail sector, it is difficult to achieve significant revenue growth.
Supply chain problems have been a growing concern in the past year, and the situation is only getting worse as conflicts in Europe drive up energy prices. Walmart's supply chain spending was $400 million more than expected at the beginning of the fourth quarter, a figure that will almost certainly increase in 2022.
Inflation is another major factor that has negatively impacted Walmart's revenue and sales. Consumer spending is still high, but as the cost of goods and services continues to rise, retail spending is likely to slow down, which means lower Walmart revenues. Fortunately, since the company is a discount store, people are likely to tend to spend less and save more, which could help Walmart's business grow. But given the higher supply chain and shipping costs, any increase in revenue could easily be offset in the bottom line.
The current unfavorable factors could negatively impact performance in the coming years, but Walmart isn't going anywhere anytime soon. The stock trades at a price-to-earnings ratio of 29, which makes it a pretty high valuation. Market volatility and future problems could push prices back down closer to their historical levels, but only time will tell.
Investors should view this stock as a solid dividend payer in a recession-proof industry and be willing to pay an inflated price for it. However, those looking for a bargain buy with better growth opportunities, and fewer headwinds can find much better deals in the market today without sacrificing stability.
As long as the price is above 141.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 144.83
- Take Profit 1: 147.00
- Take Profit 2: 151.75
Alternative scenario:
In case of breakout of the level 141.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 141.00
- Take Profit 1: 138.00
- Take Profit 2: 135.00