Source: PaxForex Premium Analytics Portal, Fundamental Insight
Walmart's stock has rallied rapidly as consumers begin to adjust to life in the COVID era. They hit an all-time high in mid-April, which for a company that's been trading since 1970 already speaks volumes.
At that peak, Walmart closed at nearly $160 a share. Perhaps with the impressive fundamental growth rate now supporting the company, it can reach another milestone and break the $200 barrier before the end of the year.
Unlike many of its peers in the retail sector, Walmart has done well amid the coronavirus pandemic and continues to expand, hopefully in the waning stages of the virus.
Revenue for the fiscal year 2022, which ended Jan. 31, was nearly $573 billion, up 2.4% year over year. That figure would have exceeded the nearly 7% increase in 2021 if not for the sale of certain international operations. Be that as it may, the retail giant's top line continues to grow, which is an admirable achievement given the supply disruptions it faced in the second half of the year.
As for profitability, we should always remember that retail is a thin-margin business. Even with the many cost-cutting innovations, the company has brought to the sector, Walmart's profitability has never been prohibitively high.
But that's relatively speaking. Thanks to its famed efficiency and the emergence of new "light" businesses, such as Walmart's advertising division, Walmart Connect, adjusted operating (i.e., non-GAAP) net income for the year rose 11% to nearly $26 billion.
As before, Walmart will remain a destination for more frugal consumers-especially if inflation continues to be a concern. In such an environment, people tend to concentrate their spending on necessities rather than luxury goods. This meshes well with Walmart's strengths as a low-cost retailer.
Low costs are likely to lead to strong but generally unimpressive growth shortly. On average, analysts tracking Walmart stock believe that revenue will grow 3% this fiscal year compared with the previous year, and net income per share will increase 4%. In the next fiscal year, those numbers will be 3% and 8%.
In addition to solid fundamental growth, Walmart is enhancing the value of its stock through steady and reliable dividend payments. Thanks to a 49-year streak of dividend increases, the company will soon go from dividend aristocrat to dividend king.
That said, Walmart's yield is not huge at 1.4%. That's almost on par with the payouts of other top retailers Target and Kroger. Moreover, Target is already a dividend king, and Walmart has the highest payout ratio of all three. Thus, the company is not a dividend payout monster in the retail world.
So, let's cut to the chase. Before we open the champagne, will we see Walmart stock finally break the $200 barrier?
While most people like Walmart as a company, especially because it always finds a way to grow, regardless of its size or the problems it faces, analysts don't see any major catalysts that will push it to such growth. The expected growth rate this year and next year is not high enough to continue to drive the stock price, which has already seen big jumps amid double-digit performance.
Most likely, the biggest stir around Walmart this year will be the impending sale of its India-based e-commerce subsidiary, Flipkart, which owns a majority stake, rather than the main company itself. According to recent rumors, Flipkart will hit the stock market at some point this year after a flashy IPO.
This should divert attention away from the parent company and cause some to reevaluate its growth prospects. While Flipkart is not a huge part of Walmart's sprawling business, it is still significant by overall retail standards and was a growth engine in the last fiscal year, increasing revenue by 25 percent during that period.
In the end, Walmart is a great investment. It's an excellent and well-run business that should continue to grow in the coming years, generating reliable and regular dividends. Still, don't bet on it breaking the $200-a-share mark just yet until 2023.
As long as price is above 152.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 154.17
- Take Profit 1: 160.00
- Take Profit 2: 165.00
Alternative scenario:
If the level of 152.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 152.00
- Take Profit 1: 146.00
- Take Profit 2: 142.00
