Walmart Inc (WMT, Financial) has witnessed a daily gain of 2.38% and a three-month gain of 4.49%. The company's Earnings Per Share (EPS) stands at 4.16. But is the stock fairly valued? Let's delve deeper into Walmart's valuation and financial performance to answer this question. We encourage you to read the following analysis for a better understanding of Walmart's intrinsic value.
Introduction to Walmart Inc
Walmart Inc (WMT, Financial) is a leading retailer in the United States, known for its superior operational efficiency and low-priced goods. The company's business strategy is to attract robust store traffic and product turnover by offering consumers the lowest-priced goods. With the opening of its first supercenter in 1988, Walmart began providing a convenient one-stop shopping destination. As of now, Walmart operates over 4,700 stores in the United States (5,300 including Sam's Club) and over 10,000 stores globally. The company generated over $420 billion in domestic namesake sales last year, with Sam's Club contributing another $84 billion to the firm's top line. Internationally, Walmart generated $100 billion in sales, serving around 240 million customers globally.
Understanding the GF Value of Walmart
The GF Value is a unique measure that estimates the current intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, the stock of Walmart (WMT, Financial) is believed to be fairly valued. The stock is currently priced at $159.39 per share with a market cap of $429.20 billion, which aligns with our estimate of the fair value. As Walmart is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of Walmart
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Two key indicators of financial strength are the cash-to-debt ratio and interest coverage. Walmart has a cash-to-debt ratio of 0.17, which ranks worse than 69.64% of companies in the Retail - Defensive industry. However, the overall financial strength of Walmart is 7 out of 10, indicating fair financial strength.
Profitability and Growth of Walmart
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Companies with high profit margins are typically safer investments than those with low profit margins. Walmart has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $622 billion and Earnings Per Share (EPS) of $4.16. Its operating margin is 3.43%, which ranks better than 53.67% of companies in the Retail - Defensive industry. Overall, GuruFocus ranks the profitability of Walmart at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Faster-growing companies create more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Walmart is 7%, which ranks better than 58.6% of companies in the Retail - Defensive industry. However, the 3-year average EBITDA growth rate is -2.2%, which ranks worse than 78.57% of companies in the Retail - Defensive industry.
ROIC vs WACC Comparison
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Walmart's ROIC is 7.95 while its WACC came in at 7.67.
Conclusion
In conclusion, the stock of Walmart (WMT, Financial) is believed to be fairly valued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 78.57% of companies in the Retail - Defensive industry. To learn more about Walmart stock, you can check out its 30-Year Financials here.
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