Is Wal-Mart’s Stock a Buy Now?

With shares of Wal-Mart (NYSE:WMT) trading at around $68.75, is WMT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

We’ll start with the most important fact, which is that any dip in Wal-Mart’s stock price has proven to be a buying opportunity.

A lot of people negative on the company will point to a saturated market, but there is still a lot more room for growth. This is especially true on an international level. While China and Japan are going through some rough patches, Wal-Mart has its eyes set on Africa, Mexico and more. Domestically, Wal-Mart aims to take market share away from its competitors as it has done so many times in the past. The next mark is dollar stores. Wal-Mart has the advantage, but dollar stores are going to be tough to defeat. Most of them are located in suburbs or small towns, and they have very loyal customers. Dollar General (NYSE:DG) isn’t backing down from a fight. By the end of 2012, they will have opened 625 new stores.

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Wal-Mart has been hammering many local supermarkets. Because of lower prices alone, some people will drive several miles out of the way for discounts. If gas prices continue to head lower, we could see this trend grow bigger in the near future.

As you probably already know, India would like to launch an inquiry into Wal-Mart lobbying. This is after Wal-Mart apparently paid $25 to U.S. lawmakers for access to foreign markets. Thinking this is news that will have any impact on the long-term performance of the stock would be like dropping a quarter into a fountain and making a wish. In other words, keep dreaming. This isn’t a Disney movie. It means absolutely nothing. If the stock is affected in the short term, then it can be looked at as a buying opportunity. Now let’s take a look at some important numbers for Wal-Mart.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Wal-Mart is normal. The balance sheet could use some improvement, but we’re talking about Wal-Mart. If there’s one negative balance sheet that you don’t have to worry about, it’s this one. Also keep in mind that Wal-Mart has over $27 billion in operating cash flow.  

Debt-To-Equity

Cash

Long-Term Debt

WMT

.73

$8.64 Billion

$57.13 Billion

TGT

1.14

$1.47 Billion

$18.55 Billion

COST

.11

$4.85 Billion

$1.38 Billion

 

T = Technicals on the Stock Chart Are Strong

Wal-Mart has performed well over the past three years. Over that timeframe, it’s up over 42 percent, which especially impressive considering a 2.20 percent yield. Target Corporation (NYSE:TGT) might have a slightly higher yield of 2.30 percent, but Target has underperformed Wal-Mart over the past few years. Costco (NASDAQ:COST), on the other hand, has outperformed Wal-Mart by a wide margin in the same timeframe.

1 Month

Year-To-Date

1 Year

3 Year

WMT

.58%

24.02%

27.08%

42.52%

TGT

.21%

23.40%

18.15%

39.81%

COST

11.55%

28.96%

27.35%

85.72%

 

At 72.30, Wal-Mart is currently trading below its 50-day SMA and 100-day SMA, but above its 200-day SMA.

50-Day SMA

73.07

100-Day SMA

73.26

200-Day SMA

68.27

 

E = Earnings and Revenue Are Steady

Wal-Mart continues to grow at a very steady rate.

2008

2009

2010

2011

2012

Revenue ($)in billions

377.02

404.25

408.08

421.85

446.95

Diluted EPS ($)

3.13

3.39

3.71

4.47

4.52

 

Quarterly earnings and revenue have also been consistent. Q3 YoY is an example of continued growth.   

10/2011

1/2012

4/2012

7/2012

10/2012

Revenue ($)in billions

110.23

123.17

113.02

114.30

113.93

Diluted EPS ($)

.96

1.50

1.09

1.18

1.08

 

T = Trends Support the Company, But Not the Industry

Wal-Mart is the equivalent of a sniper. This is a company that will patiently wait for the correct moment to strike and then take out its competitors one by one. It’s a company that understands the concept of capitalism well. For this reason alone, some people hate the company. However, investors don’t fall into that segment of the population. This is one of those cases where if you can’t beat ‘em, join ‘em.

The reason trends don’t support the industry is because every single brick and mortar retailer is in danger as long as Wal-Mart is around, and Wal-Mart will be around for quite a while.

Conclusion

Wal-Mart has a 2.20 yield, a Forward P/E of 13.45, impressive cash flow, consistent growth and the stock has performed extremely well through the years. The only negative is the balance sheet, but that shouldn’t dissuade any potential investor. Any news about corruption at Wal-Mart might be true, but it will not have a long-term impact on the stock price.

Considering all factors, Wal-Mart is an OUTPERFORM.

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