Discount retailer Walmart Inc. (NYSE:WMT) has had a difficult month after disappointing Q4 results spooked investors. Walmart stock has fallen nearly 15% over the past month and many are expecting to see the firm’s share price dip even lower in the year ahead.
I agree, Walmart stock is on shaky ground right now, but I don’t think it’s over quite yet for the big-box store. WMT stock has the potential to make a recovery as long as management doesn’t shy away from taking risks in order to protect future growth.
What Happened?
The big news that dragged Walmart stock down in mid-February was the firm’s lackluster online sales growth. In the past, WMT has been praised for growing it’s e-commerce sales by around 50% each year.
However, in the fourth quarter the company reported online sales growth of just 23% and the firm guided for just 40% growth in fiscal 2019.
That’s disappointing for investors for a few reasons. For one, Walmart’s success in building out its online offerings has been a big reason that traders were willing to believe in the company’s turnaround over the past few years.
Secondly, the success WMT has seen in online sales growth gave people reason to believe that the firm might be able to compete with the likes of Amazon.com Inc. (NASDAQ:AMZN).
However, this stumble has given investors reason to question whether or not WMT’s seemingly impressive turnaround story.
What Might Save Walmart Stock
While the sales growth slow-down is certainly a cause for concern, it’s important to look at a few key factors before panicking. First, some of that slowdown came from the fact that Walmart acquired Jet.com more than a year ago in 2016, so comparisons are getting harder.
Management also commented that the firm struggled to keep some of its most popular purchases in stock citing operational challenges.
So, it does look like a fixable situation. That is, if management is willing to take the necessary risks.
Walmart will need to invest in growing online sales, and the company’s healthy cash flow means it would be possible to do just that. The trouble is that right now, online sales are not profitable for WMT.
The firm has had to include speedy delivery and slash prices in order to compete for sales against Amazon and that has seriously hurt margins. However, it’s a necessary evil if WMT wants to step up against an e-commerce Goliath like Amazon.
There is some question as to whether or not Walmart management is comfortable taking those risks and investing in growing sales that aren’t making the company any money, yet. The key to that strategy is that Walmart would be establishing itself as a convenient, low-cost alternative to Amazon.
The Next Step
Walmart is currently working to build out its online grocery shopping options and planning to double the number of stores offering click and collect grocery pickup in the coming year.
The firm also added a new line of meal delivery kits in an effort to beef up its grocery offerings and keep consumers from straying.
The Bottom Line on Walmart Stock
The Q4 results didn’t paint a perfect picture of the future for Walmart stock, but they weren’t as bad as the market would have you believe. WMT was still able to grow its revenue and the firm kept up its trend of improving comps and store traffic figures. It wasn’t the flop that the share price decline portrayed.
A lot of whether or not WMT will be able to take the next leap in e-commerce will depend on how management plays the coming year. It’s important that the firm focus on online sales despite the fact that they’re costing a lot of money- it’s all part and parcel with keeping up with rivals.
WMT stock is looking like a good buy at the current levels, especially if the firm’s next earnings report shows improvement in the company’s e-commerce division.
Walmart certainly has the size, experience and cash to compete with a company like Amazon, the question is whether or not management will have the guts.
As of this writing Laura Hoy was long AMZN.
