Wal-Mart
stores Inc. (WMT), world’s largest retailer and public
corporation in the world that was listed in the Fortune 500 list in 2014. It
employs the largest number of people in the world with more than 2 million
employees. It has presence in more than
27 countries around the world with more than 11000 stores.
The retailer is known
for its large variety of assortments of various products and categories. It is
also known for its Everyday low pricing policy
(EDLP) which ensures that customers get the best possible price. It has a
high bargaining power over its vendors and uses efficient Inventory management
and order placement system so that the items on the shelves are replaced as
soon as they leave.
Recently Wal-Mart news came in when it announced
that it is going to increase the penetration of organic food products in its
retail outlets. It also mentioned that it is going to sell them at a price 25%
lesser from its competitors. This might be a Blue ocean strategy opted by Wal-Mart because they are offering a
new product which is of high quality and healthy and is priced at a discount.
Wal-Mart
stock price, as of 11th April 2014 is
trading at $76.89 down 1.39% from last night’s closing price of $77.97. WMT share price has declined 2.29%
since the start of 2014 but moving forward analysts expect it to appreciate
5.3% in the coming 12 months. Wal-Mart
Earnings growth this year so far has been around 4% and analysts expect it
to appreciate 8% in the next five years. Wal-Mart
stock price has been up and down due to the disappointing holiday sales.
Since Wal-Mart is the
biggest retailer of the world, its market cap is $248.3 billion which is the
highest among its competitors. Its Earnings are also the highest among its
competitors and due to this reason, WMT
P/E multiple is trading at discount over all its competitors. Same is the
case with its Revenues and Net income which are in much higher volumes.
Since 2011, the Wal-Mart Revenues have been increasing
but at a decreasing rate. But due to their high operating costs every year,
their Net income has declined despite the increase in Revenues. Their Earnings
increased from year 2011-13 but in FY14, they have decreased due to increasing
costs associated despite the rise in Revenues.
Recently, Wal-Mart sued Visa for charging high
transaction fees which ended up in high costs for Wal-Mart. WMT accused Visa Inc. for taking
advantage of its leading position in the market and dictating price.
An important ratio in
determining Wal-Mart’s ability to
perform is the coefficient of determination which is 21.8%. This means that out
of 100% price movement of Wal-Mart, only 21.8% is due to the market movements.
This means that the market risk for Wal-Mart is very low.
WMT
also has a strong alpha intercept of 0.05%. This means that if S&P 500
gives 0% return, still Wal-Mart share price will
be able to give a return of 0.05%.
Even though the holiday
sales for Wal-Mart were
disappointing, it has a lot of growth opportunities that can benefit its
financials.
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