Overview of Wal-Mart Stores, Inc.
Wal-Mart Stores, Inc. is a worldwide corporation headquartered in Bentonville, Arkansas, in the United States. It operates similarly to Walmart and manages a chain of discount department shops, hypermarkets, and grocery stores. In 1972, the firm was listed on the New York Stock Exchange, and so I felt it to be a desirable pick because it has a long history in the Stock Exchange Market. According to the Fortune Global 500, Wal-Mart is the world's largest corporation in terms of revenue, having grown from a regional to a multinational behemoth in just a few years. With over two million employees worldwide, the company is the world's largest private employer (Pignataro, 2013).
Growth and Investment Potential
Wal-Mart makes enormous profits annually making it an excellent choice for stock investment. To ensure the continuous growth of the company, part of the profits realized are reinvested in the firm thus the prospects of making, even more, benefits are very high for Wal-Mart. As a result of the investments in the progression of the enterprise, the company’s dividend payout is likely to continue growing making it a worthwhile venture. The expectations are that the dividends are not only safe but will also continue to increase (Pignataro, 2013). Robbani & Bhuyan (2016), however, assert that there could be a decline in the pace at which the dividends at Wal-Mart increase as people around the globe are shifting to shopping for items online. Advancement of technology also advances the way people do things and so as more people move to buy things online the investment in stock at Wal-Mart may decline if measures are not taken to diversify.
Competition and Market Dominance
According to Pope & Pope (2015), since Wal-Mart is ever growing the risk of investment in it is lower than in other companies. The firm could be described Medium-sized country and could rank number 26 in the list of world’s biggest economies if it were a country. The ranking is because it generates the most revenue as compared to other corporations in the world. Wal-Mart is continually looking for more investment opportunities globally. Its entry into new foreign markets translates to more profits made getting and further decreasing the risks of stock investment while growing its dividend share.
Market Presence and Financial Performance
The main competitor of Walmart is Target which has been trying to figure out the market through hip design partnerships and advertisements. Costco Wholesale Corp and Dollar Generation Corporation are other companies that are competitors of Wal-Mart. Even so, Wal-Mart is bigger than the competitors and makes the organization dominate the market. With over 10,700 retail stores across the globe, 4,500 of which are in the United States, it is illogical to compare Wal-Mart with a target which only has an approximate of 1,795 stores in the United States. Moreover, its assets totaled to $203.7 billion in 2015, and this makes its financial base five times that of its perceived major challenger, Target (Pignataro, 2013).
Factors Affecting Return on Investment
Attracting new customers has been an easy task for Walmart. The low prices it charges have contributed to this pull and hence accelerating the growth rate as new stores get opened across the globe. Across the world, more than 100 million customers shop at Walmart stores in a week (Pignataro, 2013). Walmart has also diversified its operations in that it keeps coming up with new designs for investment. The new formats include neighborhood markets (smaller grocery stores), godowns, and supercenters in the suburbs. The new investments have further ensured its unceasing progress (Robbani & Bhuyan, 2016).
Financial Performance Metrics
According to Robbani & Bhuyan (2016), the net profit margin of Walmart was 3.07% in 2016, and this designates that its profitability is high. Although Wal-Mart’s profits declined from 2015 to 2016, the revenue it generates is still significant to ensure the earning per share does not decline. Pope & Pope (2015) argue that the dividend yield at Wal-Mart is also excellent. The minimum dividend yield for the firm is 2.02% which was realized on October 15, 2012, while the maximum dividend yield stands at 3.46% recognized on November 13, 2015. The minimum and maximum give an average of 2.50% which is a good return on investment for shareholders.
Investment Prospects and Future Outlook
Its price to earnings ratio (P/E) stood at 16.05 in 2016 with an estimation of 17.25 in 2017, 16.37 in 2018 and is expected to get to 14.91 by 2019 (Pignataro, 2013). Based on the ratios for 2016 and 2017, it can get concluded that for each dollar of earnings most investors are willing to pay real money. A proportion of 17.25 indicates that those who have invested in the stock are ready to pay $17.25 for every $1 generated by Walmart and according to Robbani & Bhuyan (2016) is good money. As such investing in stock in Wal-Mart would a healthy choice.
Conclusion
On a daily basis, Walmart grows. It enters new foreign markets, opening up new stores across the continent. For this, its future looks auspicious. To improve its operations and keep up with the changes taking place in the global marketplace Walmart can benefit from its large capital base. It has not yet drained its methods of expansion, and this means that the firm can become even bigger, creating more revenue and achieving higher profit margins (Pignataro, 2013). The company’s major goal is to ensure that the shareholder value gets increased, and it is guaranteeing this happens by making sure that the remodeling that is currently taking place gets sped up (Pope & Pope, 2015).
Recommendation
As it has already been established, the earning per share at Walmart is guaranteed to increase. Its financial structure is excellent, and this will make certain that new developments will be easier which will generate even more revenue. The enormous investments and relatively low prices will attract more customers and grow the profitability even more. For these reasons, therefore, I recommend that investors invest more in Wal-Mart’s stocks.
References
Pignataro, P. (2013). Financial modeling and valuation: A practical guide to investment banking and private equity. John Wiley & Sons.
Pope, D. G., & Pope, J. C. (2015). When Walmart comes to town: Always low housing prices?. Journal of Urban Economics, 87, 1-13.
Robbani, M. G., & Bhuyan, R. (2016). Introduction of Futures and Options on a Stock Index and their Impact on the Trading Volume and Volatility: Empirical Evidence from the DJIA Components. In Derivatives and Hedge Funds (pp. 187-201). Palgrave Macmillan UK.
