It’s brutal! The course of Walmartshares (WKN: 860853) have already plunged 16.4% since the beginning of the year. For the period from April 21 to today, the minus is even as much as 24.3%. The price is currently only 121.02 US dollars (as of June 10, 2022). What’s going on with the American retail giant?
Walmart is struggling with rising costs
Goods, transport and wages are becoming increasingly expensive. Although sales increased 2.4 percent to $ 141.6 billion over the same period last year, operating profit fell by about 25 percent to $ 2.1 billion.
Therefore, the management around CEO Doug McMillon lowered his earnings expectation. The Executive Board is currently looking at double-digit food inflation rates. And worries about even higher values are rising day by day.
This also affects the mood of investors. That’s why Walmart’s shares have fallen so extremely recently, even though it looked relative in the first months of the calendar year.
Inflation is on the rise
Walmart is not the only one with this problem. Rising food prices are weakening the purchasing power of consumers, who have less money to spend on other things. This in turn increases the risk of the economy as a whole slipping into recession.
And now the problems in India are threatening. The government of the country with a population of 1.4 billion wants to counter the digital platforms of the American retail giants with its own model. It does not just apply Amazon (WKN: 906866).
Walmart is also under pressure. After all, the Indian online retailer Flipkart belongs to the group. And although Walmart has already invested billions, Flipkart is a thorn in the side of Indian politicians. They accuse the provider of exploiting its dominance and distorting competition online. In the Flipkart marketplace, some large retailers would be favored, while smaller providers would be squeezed out.
In India, until recently, there was a lot of growth music. But how the market will evolve for Walmart and Flipkart in the coming months is now in the stars.
However, do not write off Walmart
Despite all the clutter and problems, the retail group remains a huge, stable ATM. The pandemic left almost no trace in the sales and profit figures. Corona shows that many customers are looking for low prices, especially in difficult times.
I do not expect big leaps from Walmart, but stable growth. Of particular interest is the yield, which has grown continuously and steadily since the 1970s. If you buy at the current price, you get a dividend of 1.9%.
The yield trend is clearly upward. This is not least ensured by the solid balance. Walmart does not stand out in its peer group with particular equity strength. However, I consider the net debt to be harmless.
In the capital market, Walmart is considered a perfect debtor. Management could borrow billions of dollars in one fell swoop to make an interesting acquisition. But not only that: even year after year, even the operating company generates such high cash that Walmart is not dependent on it at all.
The price drop was good for the stock
As an investor, I welcome the recent price drop on the stock exchange. After all, valuation is finally approaching a reasonable level again. The price-to-book ratio is currently 4.3 and the price-to-earnings ratio is 25.5. It does not look cheap yet.
But quality also has its price. In recent years, Walmart has built an infrastructure to enable online sales to grow tremendously over the years. Walmart shares are undervalued when it comes to free cash flow potential.
Article -24.3% in just 6 weeks! Now this stock is really interesting again first appeared on The Motley Fool Germany.
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Henning Lindhoff does not own any of the mentioned shares. John Mackey, CEO of Amazon’s subsidiary Whole Foods Market, is a member of The Motley Fools’ board of directors. The Motley Fool owns shares in and recommends Amazon.
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