In the latest quarter, Wal-Mart (NYSE:WMT) posted earnings of $1.18 per share, which beat the Street estimates by one penny. However, the revenues were somewhat light at $113.53 billion. The consensus estimate was for $115.8 billion. On the news, the shares of Wal-Mart are off so far today by almost 3.5% to $71.85.
Despite all this, the overall share-price gains for 2012 are still impressive, coming to over 20%. It certainly helps that the company has been posting decent growth in comparable-store growth (sales at stores open a year or more).
But can the stock price be vulnerable right now? Or is today’s dip an opportunity? To see, here’s a look at the pros and cons:
Massive Scale. Wal-Mart is the world’s largest retailer, with over 10,100 locations in 27 countries. The company serves customers more than 200 million times a week.
E-commerce. This is a huge opportunity for Wal-Mart. Over the years, it has been investing heavily in its digital business. For example, the company has a system that allows customers to buy online and pick up those purchases at retail locations. It also has thriving websites in places like Brazil and Canada.
Strong Financials. Wal-Mart is a cash machine. In the first six months of 2012, free cash flows came to $6.1 billion. This compares to $4 billion during the same period a year ago.
A key has been Wal-Mart’s continued focus on cost-cutting and productivity improvements.
Macroeconomy. Many of Wal-Mart’s customers live paycheck-to-paycheck. Unfortunately, job growth remains anemic, and food prices likely rise because of the Midwest drought.
The slowing in global markets is also having an impact on Wal-Mart. In fact, the company plans to pull back on its expansion plans.
Competition. Major players like Target (NYSE:TGT) and Costco (Nasdaq:COST) continue to put pressure on Wal-Mart. But it also faces fierce competition from the dollar stores like Family Dollar (NYSE:FDO), Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR). And yes, e-commerce operators like Amazon (Nasdaq:AMZN) represent another big threat.
Legal. The U.S. government is investigating Wal-Mart on allegations of bribery, tax evasion and money laundering in its Mexican operations. It’s too early to get a sense of the impact, but the company’s reputation has already suffered. The investigation will also likely stunt Wal-Mart’s growth in Mexico.
For the past year, Wal-Mart has posted solid results. But the latest quarterly report is ominous. The macroeconomy appears to be taking a toll — and it’s unclear how long this will last.
At the same time, Wal-Mart’s stock isn’t cheap, with a price-to-earnings ratio of 16. The dividend is also a somewhat meager at 2.1%. In light of all this, the cons outweigh the pros on the stock for now.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.