WMT Stock Has a Lot of Sideways Movement in Its Future
Walmart (NYSE:WMT) had a very good first quarter. WMT stock, on the other hand, remains down for the year.
Sales were up 6% year-over-year, at scale. Earnings were 97 cents/share. E-commerce sales were up 37% and Samâs Club sales rose 7.2%.
Whatâs the problem? The problem is that the pandemic is ending. Investors rushed into stocks like Walmart during the lockdowns. At one point last November it was over $151/share.
WMT stock will open today at around $142. Thatâs a market cap of nearly $400 billion on fiscal 2021 sales of $560 billion. Walmart is Americaâs biggest merchant and its second-largest e-commerce player.
But with the 55 cent/share dividend now yielding 1.55%, and a price to earnings ratio of 33, investors are seeking more bang for their buck.
A Closer Look at WMT Stock
Think of Walmart as a stock investorâs bank. You put your money there for safety. You withdraw it when times get better.
Times are getting better. The economy grew at a 6.4% annual rate during the last quarter, and indications are that should continue.
This means many investors are taking withdrawals from Walmart. Theyâre looking at equipment companies like Deere (NYSE:DE), at steel companies like Cleveland-Cliffs (NYSE:CLF), and theyâre even going back to Boeing (NYSE:BA).
What was beaten down during the lockdown looks cheap now. Good times are ahead.
In a normal market, a stock like Walmart shouldnât trade for much more than 25 times earnings. Buybacks and dividends can increase that, but only to a limited extent. Walmartâs dividend is not yet generous enough to compensate.
This is yet to be reflected in analyst recommendations. Even though Walmart is down for the year and should go lower (unless earnings increase dramatically), 15 of 19 analysts at Tipranks still say buy it. Their average price target is 17% above where itâs now trading.
Walmart still sees AmazonÂ (NASDAQ:AMZN) breathing down its neck, and is doing all it can to fend it off.
Itâs buying vans to go into local package delivery, direct from stores and nearby warehouses. Itâs renting space to ghost kitchens. It bought a virtual fitting room app called Zeekit, hoping to boost sales of more fashionable clothes. It bought a telehealth provider, MeMD, providing virtual doctor visits nationwide.
The big worry is about losing share in grocery. Walmarts are huge stores. As the country opens back up smaller shops like Publix and Albertsonâs are gaining share. More worrying, so is Target (NYSE:TGT).
The Bottom Line
None of the things Walmart worries about are fatal, but they point to a 2021 that looks a lot like 2019, where its size is its undoing for many shoppers.
Growth is going to be hard to come by. Growth at scale is going to be harder to come by.
With that as background, it makes sense to withdraw from the bank of Walmart. Your money is safe there, but itâs not going to grow there. With inflation rising, WMT stock may not even grow fast enough to keep up with prices.
There are better plays in retail. Target is better. Five Below (NASDAQ:FIVE) is better. Even Bed, Bath & Beyond (NASDAQ:BBBY) is better. You donât have to rush out. You wonât be hurt here. There are just better opportunities.
On the date of publication, Dana Blankenhorn held LONG positions inÂ AMZN, CLF, MSFT and AAPL.Â The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comÂ Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technologyâs Big Bang: Yesterday, Today and Tomorrow with Mooreâs Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
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