Wal-Mart Stores, Inc.: Growth Stall Could Deal Death Blow to Walmart Stock (WMT)

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Wal-Mart Stores. Inc. (WMT) stock is about to take a tumble — at least that’s what Business strategist and Forbes contributor Adam Hartung thinks in his article, “The 10 Telltale Signs That The Future Looks Bad For Wal-Mart”.

Wal-Mart Stores, Inc.: Growth Stall Could Deal Death Blow to Walmart Stock (WMT)Some of the 10 aren’t likely on the radar of WMT investors, but Hartung did save the best for last.

Walmart, says Hartung, is in a “growth stall,” which by definition occurs when a company has two consecutive quarters of declining revenues year-over-year.

On that basis, it’s actually been in a stall for four consecutive quarters, which is as good as any explanation why WMT stock declined 26% in 2015.

It gets worse, says Hartung.

Walmart Stock Is Spinning Its Wheels

According to The Conference Board, only 7% of companies in a growth stall hit a 2% growth rate, while the remaining 93% see even less growth. The Conference Board’s data also reveals that Walmart stock holders can expect losses of at least 25%.

Worse still, 69% of stalled companies lose more than half their market value, suggesting that owning stock in Walmart could be a seriously bad move for existing shareholders.

There are many reasons why Walmart’s revenues have stalled from lower cost competition to poor treatment of front-line employees and a lack of vision from management. The fact is, big companies sometimes hit a wall; and much like a 2,000-passenger cruise ship, it can’t be turned on a dime.

That doesn’t mean WMT won’t see reignited growth, but the odds of doing so are low.

The Harvard Business Review and CEB undertook a significant study back in 2008, examining the root causes of stalled growth. They came up with four main categories: Premium-position captivity, innovation management breakdown, premature core abandonment and talent bench shortfall.

I won’t bore you with the details of each category (the link above takes you to the HBR article that discusses its research) but, for me, it’s the last point that best explains why Walmart is where it is:

“Few companies formally monitor the balance in the executive team between company lifers and newer hires who offer fresh perspectives and approaches. Furthermore, large companies have a fairly poor track record on incorporating new voices into senior management.”

Bottom Line on WMT

So, let’s look at the past three CEOs of Walmart and their work history with the company.

Current Walmart CEO Doug McMillon has worked full-time for Walmart since 1990 and part-time since 1984 (if you include summer work at one of its distribution centers). McMillon took over from Mike Duke in 2014. Duke spent 20 years with Walmart including five as CEO. Passing the torch to Mike Duke before that was Lee Scott who helmed the company for nine years before retiring on Jan. 31, 2009. Scott joined Walmart in 1979.

On average, its three most recent CEOs spent 20 years working at Walmart before ascending to the top job. Granted, Duke spent 23 years with Federated Department Stores and May Department Stores, so at least he came to the company with external retail experience, but it does paint a rather myopic picture of Walmart’s executive management.

Doug McMillion could still prove to be the tonic it needs to climb back on the growth wagon, but it isn’t going to be easy if years of research are any indication.

Three years ago I recommended to InvestorPlace readers that they pass on Walmart stock, opting for Costco Wholesale Corporation (COST) instead.

In my opinion, that’s become an even easier choice today.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/walmart-stock-wmt-wal-mart-stores/.

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