The growth cycle has run its course in another one of our stalwart companies. I’m making the call right here, right now… Wal-Mart’s retail reign is at the beginning of its end. The market is now fully mature, the expansion is complete, and the growth story is over. Wal-Mart, which became a “category-killer” company, is now too big, trying to be too many things to too many people. The GM syndrome has set in.
Don’t get me wrong, this company is still the world’s largest retailer, but so what?! You don’t want to invest your hard earned money in a company just because it’s the biggest — you want to invest in a company with rising earnings and excellent growth prospects.
Sam Walton revolutionized the retail industry and deserved every single bit of the success he created. After creating enormous wealth for long-time investors and bringing low prices to consumers, the fact of the matter is that from an investor’s point of view, this growth story is over. The company’s stock chart illustrates the trend perfectly. All that remains now is for the unions to take over.
Recently, Wal-Mart reported weaker-than-expected first quarter earnings. You might think that this is just a reflection of a weak retail market overall, but hold your horses! Staples’ first quarter profits just rose 27% on the back of a 13% rise in revenues. The company’s CEO, Ron Sargent, said that Staples is gaining significant market share and sales are exceeding expectations in newly opened stores.
So, do you think this is a one-off success? No way. J.C. Penney, a company that’s been around forever, just returned a fourfold increase in profits for its most recent first quarter. This company is beating the Street and is raising forward estimates. There is no way the retail market is dead.
You might own Wal-Mart stock, and you might not. I’m only going on about this topic because I keep seeing the same pattern repeat itself in business. The company’s been so successful for so long that there just isn’t anywhere else to expand. The company is past its maturity. Wal-Mart is a company that’s going to be around for a very long time, but if anyone tries to sell you any of its stock, you’d better think twice.