Source: PaxForex Premium Analytics Portal, Fundamental Insight
Walmart is gearing up for a significant change, but don't worry – it's not breaking up or selling off any units. Instead, the retail giant recently announced its plan to undergo a 3-for-1 stock split on February 26, 2024. CEO Doug McMillon clarified that this decision stems from the belief of Walmart's founder, Sam Walton, who advocated for making the company's share price more accessible to its associates. McMillon expressed, "Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come."
Curious about the potential impact on Walmart's stock following the split? Let's delve into what historical data indicates.
Before delving into Walmart's historical stock split performance, let's explore the rationale behind the potential catalyst provided by a stock split. The concept revolves around the notion that retail investors may be less inclined to purchase stocks with high share prices. Splitting the stock and lowering the share price, this could attract these investors, leading to increased buying pressure and subsequently driving the share price upward.
In practice, this theory doesn't always hold true; outcomes vary.
Walmart has undergone nine 2-for-1 stock splits over the years. The first, occurring on Aug. 25, 1975, didn't yield a significant movement in share prices before or immediately after the split. However, the narrative shifted with the company's subsequent 2-for-1 stock split on Dec. 17, 1980. Before this split, Walmart's shares had been on a downward trend, but they rebounded considerably post-split.
On July 12, 1982, Walmart experienced yet another stock split, and once again, it appeared to act as a catalyst.
Exactly one year later, on July 11, 1983, Walmart initiated another 2-for-1 stock split. This time, there was an immediate post-split bump, followed by a subsequent decline within days.
The next two splits occurred in October 1985 and July 1987, both resulting in share price jumps for Walmart. The split on July 13, 1987, particularly led to a robust gain.
However, this pattern wasn't consistently replicated. For instance, the stock split on July 9, 1990, doesn't clearly correlate with a rise in Walmart's shares, as an uptrend was already in progress at that time.
The impact of Walmart's stock split on Feb. 26, 1993, remains unclear in terms of its effect on the stock's performance. Share prices were already on the rise before the split, and the upward trend persisted for a few days afterward.
The most recent stock split for Walmart took place on April 20, 1999. However, the debate continues over whether the split acted as a catalyst. Preceding the split, the stock was already experiencing a rebound. While there was a brief post-split uptick in Walmart's shares, all gained ground was soon lost.
A crucial takeaway from Walmart's stock split history emerges: predicting the stock's behavior post-split is challenging. Investors may find greater value in focusing on the company's fundamental aspects, growth prospects, and valuation.
Walmart boasts a robust underlying business, with Wall Street projecting fiscal 2024 revenue around $645 billion. The company consistently generates solid profits and free cash flow. While Walmart may not exhibit the same growth prospects as in its earlier years as a retail giant with a market cap exceeding $450 billion, its e-commerce and advertising businesses emerge as significant growth drivers for the future.
Despite these strengths, concerns linger regarding Walmart's valuation. With a forward price-to-earnings multiple of 23.8x, the stock doesn't come at an excessively high premium, but it's not considered cheap either. While Walmart remains an attractive long-term investment, exercising patience for a potential pullback before buying may be a prudent move for investors.
As long as the price is above 165.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 170.30
- Take Profit 1: 172.00
- Take Profit 2: 175.00
Alternative scenario:
If the level of 165.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 165.00
- Take Profit 1: 162.00
- Take Profit 2: 160.00
