E-Commerce Push Could Be Big for WMT Stock
It’s no secret that Wal-Mart Stores, Inc. (NYSE:WMT) is facing an uphill battle these days. The WMT stock price has nosedived by 11% since mid-October and 30% since December 2014, which has led analysts and investors to give the company a wide berth.
Such sentiments are completely off the ball, though, as Walmart is still a well-managed retail company with great upside growth potential going into next year. The company has even managed to begin showing serious signs of recovery, as WMT stock has slowly bounced up from its four-year low of $56.42 on November 13.
While it’s true that the WMT stock price has shown lackluster performance in the past several months, concentrating on a company’s stock price movement alone isn’t really the most accurate way to forecast its stock movement in the future. Now, before I explain how Walmart could theoretically double in value next year, and why there certainly hasn’t been a better time to take a second look at Walmart stock, let’s take a step back and talk about how Walmart got into this predicament in the first place.
2015 Was Bad, but 2016 Will Shine
Walmart has certainly been struggling this year, as the retail giant underperformed Wall Street earnings forecasts in the second and third quarters of this year. The world’s largest retailer also happened to announce slow profit growth forecasts for 2016, which has led some investors to start wondering how low the WMT stock price can drop. (Source: “Wal-Mart stock suffering as consumers sit on their wallets,” The Globe & Mail, November 17, 2015.)
Now, Walmart may not sound too exciting from the perspective of short-term growth, but it’s difficult to exaggerate how nearsighted this bearish view is. It’s a given that all big companies go through their periodic declines, but not all of them have the financial assets and solid record of rallying out of the infrequent drop that Walmart does. Walmart’s stock price has dropped by a substantial margin and yes, it is the worst-performing large company in the S&P 500 right. But would you be surprised to know that this is what warrants taking another look at it?
The WMT stock price is offering a very robust dividend yield of 3.03%, or $0.49 per share, which is a percentage point higher than the current S&P 500 average. Rather than this high yield being a desperate move of a declining retailer, Walmart has been able to maintain this same dividend payment yield over the last five consecutive financial quarters.
Now that’s what I call a solid performance, the sort you can depend on when it comes to considering a long-term value stock pick.
The company definitely has an ace up its sleeve, however, as the world’s largest retailer has taken aim at a far more profitable sector than its usual brick-and-mortar retailing. E-commerce is the name of the game now, folks, and it’s one market that a business with the financial assets on the scale of Walmart could probably become a huge player in.
Walmart Stares Down Amazon.com, Inc.
The Walmart stock price could see massive growth in the near future, as the retail giant begins efforts to restructure itself and begin directly competing in the online space with Amazon, which operates the biggest e-commerce retail platform in the world. (Source: “Wal-Mart Revamps E-Commerce Technology as Amazon Applies Pressure,” The Wall Street Journal, November 25, 2015.) And that’s not all, because Walmart isn’t simply aiming to concentrate on web competition; the company wants to reinvent the concept of e-commerce itself, too.
How can it achieve this, you ask? It’s simple, really.
Walmart’s strategy will focus on seamlessly integrating e-commerce options with the normal physical shopping experience, whereby consumers will have the ability to pre-order things they wish to buy. Using their smartphones or other connected devices, this will give customers the option of then picking up their purchased items at one of Walmart’s physical stores or having the item delivered to their door. (Source: “Walmart touts e-commerce, mobile growth plans on solid Q3 results,” Fortune, November 17, 2015.)
The advantage here is that, compared to Amazon, which is web-based and has no retail stores at this time, Walmart can rely on an existing international chain of stores to connect with its e-commerce platform. Binding physical and online shopping experiences will result in lower operational expenses and an uplift to overall sales. Likewise, margins will rise and the Walmart stock price is likely to rise alongside margins.
So when you stop to consider the long-term potential of the world’s largest retailer turning into the largest e-commerce platform, the significant potential for growth appears absolutely limitless. When a wise investor stops to take a careful look at Walmart stock, they quickly realize it’s undervalued right now and certainly worth that closer look.
The Bottom Line on WMT Stock
The holiday shopping season is upon us and we all know that Walmart will see massive sales levels this season, as always. Any rise in sales will translate to a bigger bottom line for Walmart, providing significant uplift to the Walmart stock price for the fourth quarter of 2015 and well into 2016.
Regarding the company’s financial performance, analysts’ earnings forecasts were again revised to a low enough level for the medium-term so Walmart could easily outperform if the company’s foray into e-commerce is successful. Given its track record and elite position as one of the world’s biggest companies, this is one healthy retailer with the capacity to bring itself out of what will likely end up being yet another decline.
Over the long-term, Walmart’s stock price could soar once the company sorts out this latest setback.