Walmart (NYSE:WMT) is one of the great business success stories of the past few decades. After revolutionizing American retailing in the 1980s and 1990s, it has managed to hold its own in this century even as so much consumer traffic has shifted to online spending. Walmart stock has been a steady, reliable grower as well.
The Arkansas-based company has dominated low- to mid-priced retailing for a generation or more. Its huge economies of scale allow it to offer consumers everyday low prices, and its distribution system is global.
But the big story in retailing, for at least a decade, has been the replacement of brick and mortar stores with online shopping.
Amazon (NASDAQ:AMZN) has the resources to compete with Walmart, and it has an expanding network of partners that allow it to provide a greater range of products.
As a pioneer in cloud computing, Amazon has the ability to develop highly sophisticated profiles of its users and then target very specific and effective advertising at them. But Walmart has been making some smart moves to maintain its position.
Walmart Stock and the Microsoft Partnership
While Walmart was taking the retail world by storm in the early 1990s, Microsoft (NASDAQ:MSFT) was becoming the first great company of the internet age. Now the two titans have formed a strategic partnership to accelerate Walmart’s digital presence.
The alliance is expected to greatly improve Walmart’s cloud computing abilities. The deal includes include a broad range of machine learning, artificial intelligence, and data platform technologies, as well as access to Microsoft 365.
The retailer says it will migrate a significant portion of Walmart.com and Samsclub.com to Microsoft Azure, a cloud computing platform and service. Walmart management believes this will help them manage increasing customer demand both in the U.S. and abroad.
Walmart Stock and Expansion into New Markets
This cloud partnership is not the only move Walmart has made recently in cyberspace. The company spent an eye-popping $16 billion for a controlling stake in India’s Flipkart. A big investment, but India may be the fastest growing online marketplace on Earth.
Walmart has also been moving into clothing manufacturing, creating synergy with its retail outlets. In 2017 it purchased several brands, including Bonobos and ModCloth, and a few months ago it launched four new private label brands
Despite Amazon’s ubiquity, Walmart still generates more revenue—more than twice as much, in fact. Even with the expense of maintaining its network of stores, its operating cash flow is still among the highest in the world.
One element weighing heavily in the company’s favor is its relatively modest price-earnings ratio, which is currently around 30.
Analysts looking for the next big tech winner may have a tendency to overlook Walmart’s dominance in its home markets, its expanding online presence, and its universally recognizable brand. Its price-to-sales and price-to-cash-flow figures are also encouraging.
The Bottom Line on Walmart Stock
Walmart stock is unlikely to provide spectacular growth over the next several years, but it is not going to lose its market dominance either. Value investors should give careful consideration to adding it to their portfolios.
The author does not own any of the stocks discussed in this article.
