Walmart shares are up over 20% and sport a dividend of 53 cents, currently better than what you get on a 10-year government bond. Amazon is down 5% and has no dividend.
Thanks to 2018’s heavy investments in technology, investors are now paying almost 38 times last year’s earnings for Walmart, which next reports August 15. Amazon sells for 75 times earnings, but it’s growing 20% per year, while Walmart is growing at 3% per year.
Analysts expect Walmart to earn $1.21 per share on revenue of $130.5 billion and are hoping for $1.25. Keep that up and it has a price to earnings ratio of 21.6, better but still high for a retailer.
Why does everyone love Walmart stock?
WMT Stock Beating Amazon?
For many investors, Walmart represents safety. The company delivers slow, steady growth. Walmart is a bet on the American consumer. Its sales are over $515 billion, its market cap $319 billion.
Investors believe consumers will accept the cost of China tariffs and keep buying at Walmart. Walmart represents almost 10% of the entire U.S. retail market. How people buy may change, but analysts believe Walmart is staying on top of the changes. It’s experimenting with mini-stores that are just online pickup windows. E-commerce sales up 37% year-over-year. Walmart is even seeking a cryptocurrency patent.
Never mind that online sales are mostly cannibalizing in-store revenue, or that revenue is still growing at that steady 3%, or that Walmart continues to lose money in e-commerce. Walmart isn’t beating Amazon, but there’s truthiness in the idea that it is.
Analysts feel it’s true, that it’s at least competitive. Walmart insists it’s growing in e-commerce, but it massages that message carefully for analysts, so investors buy it.
The assumption is that, in a rapidly changing retail environment, Walmart is on top of things.
But is it? The Gun Problem
Walmart is America’s downtown. It faces all the urban problems other downtowns face. This includes the problem of violence.
The shooting at an El Paso store that killed 22, while especially horrific, was not as aberrant as it seemed. Two people were shot to death at a Mississippi Walmart just a week before. A man was shot to death in a Walmart parking lot in California on August 7. That same day, a man threatened to shoot up a Walmart in Alabama. This was two days after another man threatened to open fire at a store in Florida.
Another Way for WMT Stock
There are other ways to get Walmart’s results in your portfolio without Walmart’s risks.
One way is with Kroger (NYSE:KR). I’ve written about them before. Kroger had sales of $121 billion in 2018, but its market cap is just $19.5 billion. Kroger’s 16 cent per share dividend represents a yield of 2.88%. Last year’s earnings were five times higher than that dividend.
None of this is to say you should do what I have done and buy Kroger. It’s just that Walmart stock is not the only way to play retail growth.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, AAPL and KR.