Walmart Valuation!

Dear Reader,

Here I am going to attempt to value Walmart Inc., the worlds largest retailer.

In short, the company is 25% undervalued. Why?

Because Walmart grew its revenue in the last fiscal year. No, I do not believe Walmart is in a declining industry. People will always shop in retail outlets. Amazon is good for books, may be electronics and a lot of other stuff. But "brick and mortar" outlets like Walmart and Bestbuy are indispensable. The world's population and income are growing so it is safe to assume that the revenue of retail chains of the type of Walmart will grow in line with the world's GDP - 3% to 5% a year.

Last fiscal year Walmart realized 500 billion USD of revenue, which is a staggering sum. Yes, I know Walmart mainly resells other firms' products, but doesn't Amazon also? Major retail chains have their own product lines, so they are still producing stuff, not only service. Wallmart is trading at a trailing 12 month Price/Earnings ratio of 58.20, but the profit for the last fiscal year was 9.86 bln. USD and Wallmart's market capitalization is 296.8 bln. USD, so the real Price/Earnings ratio is close to 30. What is more, the declining profit speaks that Wallmart is reinvesting in its business. The acquisition of Jet.com gave Walmart a foothold in a younger demographic and a platform to really compete with Amazon. In addition, Walmart acquired a range of hip clothing brands which again will attract the younger audience of millenials.

Walmart has been suffering from the Amazon effect. Everybody seems to think Amazon will evaporate the retail industry and everything will move online. As recent years have shown this is not going to happen or at least not to such a large extent as Wall Street analysts seem to assume. Recently, Amazon's stock fell 25% while Walmart's stock rose 5%. If a recession ensues or a bear market in stocks Wallmart will provide the proverbial margin of safety and fall much less than the stocks of major technology stocks. Since I forecast a global recession and a US stocks bear market somewhere in 2021 or 2022, I believe Walmart's stock has the potential to go up by 25% between now and 2021/2022.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich