Wal-mart stock analysis

Many people rightly suppose that when you purchase a share of stock you are buying a proportional share in a business. As a consequence, to figure out how much the stock is worth, you should determine how much the business is worth. Investors generally do this by assessing the company’s financials in terms of per-share values in order to calculate how much the proportional share of the business is worth. Some know this as fundamental analysis, and most who use it view it as the only kind of rational stock analysis (Benjamin, 2008).

There is no doubt about Wal-mart repute as a universal icon in corporate running of department being the largest retailer of groceries in America .It was founded in 1962 by Sam Walton and later incorporated in the year 1969, Wal-mart has grown to  become the public corporation that earns the largest revenue in the world. In addition since enlisting in the New-York stock exchange in the 1972, it has being able to give yearly dividends for 36 years straight. It has opened stores all over the world in places like Argentina, Brazil, Canada and Puerto Rico. As if that isn’t enough as a credential it is currently the private employer in the United States.

Definitely as a corporation, Wal-mart is not easily ignorable when it comes to investment opportunities and primarily because of its largeness it is the subject of much scrutiny and analysis. The Wal-Mart Stores manages its worldwide retail stores in three different formats, first it operates the Wal-mart stores second it runs the Sam’s club and thirdly it runs the Wal-mart international. As mentioned earlier the company is a dividend aristocrat in the sense that it gives annual dividends as a strict policy. Wal-mart also happens to be a major component of the S&P 500 and Dow Jones Industrials indexes.

Over the past 10 years Wal-marts dividends have seen a growth stock that has delivered an annual average total return of 10.50 percent to its shareholders. The stock went to its peak in 1999 and hit 70.25 dollars. There has been an extremely impressive increase – considering the size of its operations – in the company’s annual earnings per share of 16 percent. This is attributed to the steady increase in its departmental stores around the country. In the year 2008 the company’s net sales grew to 374,307 billion dollars from a previous 344,759 in year 2008 and a 308,945 in the year 2007.one intriguing situation with WAL-mart is the way it has managed to anchor in growth sea in a turbulent recession period as the largest retailer in the united states it managed report solid financial profit figures for the most recent fiscal year that was ending January 31, 2009 with 401.2 billion dollars in net sales, a gain of 7.2 percent from the prior year. Income from continuing operations increased 3 percent to 13.3 billion dollars, and earnings per share rose 6 percent to 3.35 dollars (Wal-Mart stores, Inc, 2009).

Another point that makes investing in Wal-mart a quality decision would be the growth of its annual dividend payment over the last decade or so. The annual dividend rate has grown at the rate of 21 percent. This information just shows how lucrative the corporation is since this implies that dividends double every three and a half years. In addition the annual dividend rate is higher than the return on earnings. Anyway a look at the Wal-marts historical data and it is evident that since 1993 it has been able to double its dividends every after three and a half years.

To put this in factual illustration if one could have bought an amount of shares, lets say in the year 1997 then two years down the line readjust the amount to the stock split of 1999, the dividends would have risen by an incredible percentage of 464 percent in the year 2007.If you are the kind of investor who prefers to reinvest dividends then the increase over a decade would have been 612 percent. The return on equity is ranging between 20 and 25 percent, which is generally a desirable and good payout. This is because there is plenty of room left for consistent dividend growth and this will from a cushion against the effects of a possible short –term fluctuation.

As previously mentioned Wal mart has increased dividends consistently for thirty six years and in March 2009 it announced an increase in dividends of 15 percent and several months down the line it announced a billion stock buy out of 15 dollars per share. Even though the current economic turbulence has seen Wal-marts growth slightly slow, it is definitely one of the best investment options available given that it always investing in technical and computer innovations which downsize the operating costs of stock control. In addition Wal-mart uses a fore-casting strategy that enables it to focus on certain types of store commodities which goes along way to cushion it cash inflows against weak demand phases of the economy.

The company also embraces a diversification strategy which has it selling a wide variety of goods on its shelves. It also applies a low pricing strategy relative to its competitors which enables it to penetrate more into the market and also help it to maintain its existing market share. The company is currently cutting down the pace of opening new branch store but instead focus more on developing to the maximum the profitability of the existing retail outlets. These outlets are mainly the international oversea branches in countries like Brazil, Chile, china and India which offer a very high chance of profit growth (Wal-Mart stores, Inc, 2009). These are some of the reason behind the 2008 strong performance of the company’s stock. There is also the added advantage that comes with customer loyalty that is a result of an established brand name.

When it comes to a customer base the statistics are just staggering. In the year 2007 Global Insight released results that revealed the effectiveness of the low pricing strategy to attracting customers. the results showed that the company’s friendly price-levels saved its customers a whooping 287 billion dollars in the previous year 2006.this figure equated so as to match every customer’s share shows that each customer saves 957 dollars. Taking into consideration the average house hold in the country that translates to 2500 dollars saved by each household. This goes miles ahead in giving the company public sentiment and thus customer loyalty.

That’s why it comes as little surprise that with every week a third of the United States population steps into wal-mart stores to make purchases. What is more re-assuring is the fact that most of these customers are conservative and are rated with a high possibility of loyalty. This loyalty test has been tested over the years by comparing the political voting tendencies of the stores customers. This is reassuring especially given the competition that the stores are facing from companies like k-mart. In the recent past the company has taken an initiative to expand its existing customer base. It did take a step to modify its store from the convectional one size fit all to customizing its merchandise so as to reflect each of the country’s demographic groups(Wal-Mart stores, Inc, 2009).

Wal-mart is one of the firms that have enjoyed favorable ratings consistently for a while especially in the last decade. When it comes to corporate management the company could as well write a manual for it has one of the highest ranked management team in the world. As previously rein-stated the future for the company is bright and so any efforts aimed at investing in its stocks are highly likely to bring satisfactory returns.

 

References:

Wal-Mart stores, Inc. March 72009, financial analysis, Retrieved 7 Oct 2009 from http://DividendsValue.com.

Wal-mart stores, inc. January 1st 2009, five year financial review 2008.

 

Graham Benjamin, Security Analysis, McGraw-Hill, 2008.