Walmart Isn’t Just Overvalued, It Is Moving in All the Wrong Directions

Walmart (NYSE:WMT) stock isn’t a tech stock, so why is it priced like one?

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background
Source: Jonathan Weiss / Shutterstock.com

WMT stock trades around $137, giving it a market cap of $389 billion on 2020 sales of $559 billion.

It’s also a price-to-earnings ratio of 29. The once-generous 55 cent/share dividend now yields about 1.59%. The stock is up less than 8% over the last year. There is no way to justify that price.

Before the pandemic WMT stock had been running higher alongside the market. Only recently have investors started to catch on to the truth. Walmart is a slow-growing retailer facing growing competition and failing to exploit opportunities. Since the start of 2021, the shares are up just 4%, while the average S&P 500 stock is up 11.5%.

Despite CEO Doug McMillon’s obsession with Amazon.Com (NASDAQ:AMZN), Amazon is now expected to pass Walmart in retail sales by 2025.

Walmart has become the second-largest player in e-commerce, it has a third-party sales platform and its supply chain is hiring thousands of people, but the effort to become Amazon is failing.

The third-party effort has stalled. The company is pulling out of automated “pick-up towers” in favor of curbside pick-up and employee delivery. The company is telling potential employees that it wants their full-time loyalty to win a race it’s losing.

Yet while it’s depending more on people, Walmart continues to fight them. It’s resisting the move to a higher minimum wage even as labor markets tighten. It’s fighting shareholder efforts to make it disclose more on racial equity issues.  It’s becoming lower-middle-class while rivals move up-market.

Reinvention Stalls

Few things illustrate Walmart’s problem better than the fate of Walmart Health.

Walmart started opening in-store clinics in late 2019, under Greg Foran, then head of Walmart U.S. The idea was to put doctors into unused store real estate, offering visits for as little as $40, and eventually sign contracts with insurers.

I was able to find one such contract, with Clover Health (NASDAQ:CLOV), which is offering Medicare Advantage plans in Georgia.

Foran left soon after the first clinics opened, and nine other executives followed him out the door in 2020. Walmart has become a major distributor of COVID-19 vaccines, which lets it publicize a push for “vaccination passports,”  But it’s not a major health care provider, and may never become one.

The “massive makeover” of some stores, which can be closed for months at a time, turns out to be more automated check-outs.

Instead of waiting in lines for individual checkers, shoppers now wait in line to enter “pods” filled with self-checkout gear. The sales floor has been rearranged to look more like Target (NYSE:TGT). But no effort has been made to copy Target’s strategy of high-quality store brands.

The Bottom Line on WMT Stock

Doug McMillon has been CEO of Walmart since 2014, and he’s running out of ideas.

After years of promises, for e-commerce, for entry into new markets, and for automation, Walmart is still Walmart. It has huge stores that dominate rural and suburban markets, paying low wages and changing in only superficial ways.

Walmart managed 6.8% sales growth during the pandemic. But from 2018-2021 total sales are up only 12%. Its “next-generation business model” looks a lot like the old model.

Analysts have yet to catch on, with 16 of 20 at Tipranks still pounding the table for the stock. But investors should ask, why? Why stay in a slow-growth, slow-changing name just because the company is huge? Why pay 29 times earnings when net income for fiscal 2017 was higher than in fiscal 2021?

At the time of publication, Dana Blankenhorn directly owned shares in AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/wmt-stock-2/.

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