Walmart Stock: Another “Not-As-Bad-As-You-Think” Opportunity
Regular readers of this column would know that I’m a big fan of what I call “not-as-bad-as-you-think” opportunities because of their huge upside potential. Today I would like to add another one to that list: Wal-Mart Stores, Inc. (NYSE:WMT) stock.
Everyone knows that Walmart stock (WMT stock) is far from being an exciting name in the stock market right now. The company is more than five decades old and is in the retail business, which—let’s be honest—is not an industry with the brightest outlook.
But that’s exactly why I believe it could be a “not-as-bad-as-you-think” opportunity. This is because once the company shows that it can actually do much better than what investors are anticipating, Walmart stock could see a massive upside.
The boom of the e-commerce industry is the number-one reason why investors are not fond of brick-and-mortar retailers these days. Many believe that e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) will take over the business of physical retailers. Just take a look at Amazon stock and you’ll see what I mean. Trading at $766.77 apiece, AMZN stock has a price-to-earnings (P/E) multiple of 175 times. Investors are willing to pay a premium because they believe in the future of e-commerce.
However, the same reason why Walmart stock doesn’t look that appealing today could also be the reason behind its next big turnaround. Walmart does not have the biggest e-commerce platform in the world, but that doesn’t mean it can’t reap rewards from the e-commerce boom.
In Walmart’s most recent fiscal quarter, e-commerce sales surged 20.6% year-over-year on a constant currency basis. Excluding its Yihaodian business in China, Walmart’s gross merchandise volume (GMV) increased by 28.6% under constant currency. (Source: “Walmart reports Q3 FY17 EPS of $0.98,” Wal-Mart Stores, Inc., November 17, 2016.)
The company’s online shopping platform is also well prepared for the holiday shopping season. Walmart’s online product assortment has nearly tripled this year from 8 million items to more than 23 million. And, rather than having just Cyber Monday, Walmart is offering Cyber Week to online shoppers. (Source: “Walmart’s Significantly Expanded Assortment Brings More Choices for Customers and the Largest Cyber Week Event, Earlier than Ever,” Wal-Mart Stores, Inc., November 21, 2016.)
The company’s potential in the e-commerce segment could become a big catalyst for Walmart stock. But don’t forget that, compared to most companies in the e-commerce world today, WMT stock has another appeal: dividends.
The tech industry is a high-maintenance one. It requires constant reinvestment just to stay relevant. That means that, despite fast growth, many companies don’t have the ability to pay dividends.
Walmart has a growing online platform, but it is still a retailer for the most part. In fact, it is the biggest retailer in the world by revenue. Its deeply entrenched position in the retail industry means it can return value to investors.
Right now, WMT stock pays $0.50 per share on a quarterly basis, translating to an annual dividend yield of 2.81%. Moreover, the company has raised its payout in each of the past 43 years.
The Bottom Line on Walmart Stock
Usually, when a company has both growth potential and handsome distributions, it would be expensive. But that’s not the case for WMT stock. Trading at $71.19, Walmart stock has a P/E multiple of just 15 times. Once the market realizes that the future of this retailer is not as bad as it once thought, Walmart stock could see massive upside.