As you may know, Walmart (NYSE:WMT) stock went on an incredible run last year. When the coronavirus pandemic first hit, investors initially feared that “social distancing” would have a devastating effect on this big box store’s bricks-and-mortar operations.
But, as one of the few places allowed to stay open, big box stores were resilient during the worst of lockdowns. Not only that, its budding e-commerce operations saw massive growth from the pivot to online shopping.
In short, it’s no surprise WMT stock quickly recovered its initial “coronavirus crash” losses, and soared to new highs by year’s end.
Yet, as 2021 has played out, investor interest in Walmart has waned. Pivoting to “recovery plays,” “pandemic plays” like this one have pulled back. However, you shouldn’t take this as a sign that you should start heading for the exits.
Keep it if you own it. And if you haven’t bought it yet? Now may be the time to enter a position.
Why? Last year’s once-in-a-lifetime situation may have given its business an unexpected boost. But, this isn’t a “one and done” pandemic stock. Its underlying strengths will carry on in the years ahead. With its heavy bricks-and-mortar presence, coupled with its e-commerce platform, this omnichannel retailer can continue to grow at a steady clip.
As a recession resistant business, trading at a reasonable valuation, this is a high-quality stock. A great long-term holding. And a solid way to diversify a growth portfolio.
WMT Stock and Its Post-Covid Growth
The lockdowns have for the most part ended in the U.S. With the vaccine rollout, America is fully in “recovery mode” from the virus. So, what does that mean for Walmart’s performance in the years ahead?
Admittedly, without last year’s unique circumstances, results for this fiscal year (ending January 2022) will likely see little change compared to last year. Average sell-side estimates call for $5.38 per share in earnings this FY, versus $5.48 per share in the fiscal year ending January 2021. But with earnings the year after that set to rise, it’s clear this behemoth will continue to grow at a solid clip.
Some may be skeptical of the company’s growth prospects. Namely, due to its Walmart+ subscription service falling short so far of expectations. Yet with its global expansion, along with e-commerce growth, the company has plenty in motion to avoid stagnating once the new virus, and any possible post-recovery rebound, are over-and-done-with.
Another reservation you may have: Walmart’s long-term growth potential is moderate at best. With high single-digit earnings growth projected in the years ahead, I agree with you. But, taking into account its current forward price-to-earnings (P/E) multiple, along with its status as a defensive stock, this does little to damage the bull case.
Reasonably Priced and Recession Resistant
As it stands now, WMT stock changes hands at a forward P/E of 25.3x. Relative to its quality, and long-term prospects, this is reasonable. Again, its projected high single-digit earnings growth may look less impressive, at least compared to the large-cap growth names out there.
But, I wouldn’t be concerned about Walmart shares taking a dive due to any sort of valuation contraction. Why? In today’s environment, other defensive, recession-resistant stocks sport similar valuations. Its peers in the big box retail space also share this quality.
I agree that this isn’t a stock that will produce jaw-dropping returns. Out of the blue, WMT stock is not going to double anytime soon. But with minimal risk of valuation contraction, combined with slow-and-steady earnings growth, shares could deliver solid returns over the long haul.
Another way to view it: Walmart stock is a great way to diversify a growth portfolio. You may have bought many “growth stories” in the past year that delivered stunning returns. But, these top performing plays are highly vulnerable if we see a correction. Adding names like Walmart offers a safe harbor if markets start moving in the wrong direction. As such, it’s a wise way to get ahead of this risk.
Walmart Is Buy At Today’s Prices
So far this year, Walmart’s stock performance has trailed the overall market. Those who have held it since before its rally from around $115 per share, to around $152 per share, may be inkling to cash out at $138 per share.
That’s a short-sided way to view this stock. The coming year may bring more muted returns. With slow-and-steady growth ahead, future performance may not set the world on fire. But, these potential gains going forward will be more solid, and less volatile, than with some of the more “high flying” names out there.
Bottom line: If you already own WMT stock, sit tight. And if you don’t own it yet? Consider it a stock for all markets, and a buy at today’s prices.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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