With shares of Wal-Mart Stores Inc. (NYSE:WMT) trading at around $72.98, 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

Wal-Mart is refocusing on what originally led to phenomenal success. The refocus of domestic sales and price cuts should lead to improved results, but the phenomenal era for Wal-Mart is over. However, that doesn’t mean it’s a bad investment.

Competition is by far the biggest challenge for Wal-Mart. There’s a lot of competition from dollar stores, other big-box retailers, and superstores. However, online retailers are the biggest long-term threats, especially Amazon.com Inc. (NASDAQ:AMZN). Amazon has been bulldozing its way to success, destroying smaller competitors with ease. Perhaps it’s karma considering Wal-Mart did the same to mom and pop stores. But this is a different economic environment. Of course, Amazon won’t put Wal-Mart out of business, but if trends continue the way they are now, then Amazon will continue to steal more market share from Wal-Mart going forward.

People of all ages shop at Wal-Mart, but pay careful attention to the people the next time you’re shopping at Wal-Mart. This doesn’t mean to go looking for large, toothless women wearing string bikinis… unless you’re into that. Instead, pay attention to the ages of the shoppers. You might notice that the majority of shoppers aren’t of the mobile generation. Why? Two reasons. One, they’re more comfortable shopping online. Two, it’s not cool to be spotted by friends at Wal-Mart. As the mobile generation ages and the generation after them moves into the consumer spotlight, the trend toward shopping online will gain even more momentum. This is bad news for Wal-Mart. That said, not everyone likes shopping online, and that will always be the case.

This article may seem anti-Wal-Mart to this point, but let’s take a look at some important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for Wal-Mart is normal; it’s very close to the industry average of 0.70. The balance sheet is in negative territory, but operating cash flow is very strong at $25.59 billion.


T = Technicals on the Stock Chart Are Strong  

Wal-Mart has been a steady performer since its IPO. Also keep in mind that it held up better than most stocks during the financial crisis of 2008/2009. As far as competition goes, Wal-Mart has barely outperformed Costco Wholesale Corporation (NASDAQ:COST) and Target Corp. (NYSE:TGT) over the past year. Like it or not, these stocks trade closely together most of the time. Take a look at comparative charts if you get a chance. Since these stocks trade closely together, the dividend yield becomes very important. Wal-Mart yields 2.60 percent, Target yields 2.20 percent, and Costco yields 1.10 percent.


At $72.98, Wal-Mart is currently trading above all its averages.

50-Day   SMA


100-Day   SMA


200-Day   SMA



E = Earnings Have Been Steady           

Forget everything you read above in the Catalyst section. Sure, it might be more forward-looking than the numbers presented below, but online shopping has been a threat for a while now. Yes, online shopping will continue to increase, but up until this point, it hasn’t slowed down Wal-Mart much. Earnings and revenue have both consistently improved on an annual basis. As long as this continues, Wal-Mart remains a winner.


When we look at the last quarter on a year-over-year basis, we see an increase in earnings and revenue. Isn’t this supposed to be a company in trouble because of all the competition? Interesting how simple numbers can quickly reveal the truth.


Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Trends have pretty much been covered in the Catalyst section. However, it should be added that these are all low-margin operations. Therefore, there isn’t much room for error. It might surprise some people to know that out of Wal-Mart, Costco, Target, and Amazon, Target has the most impressive margins. That’s interesting, but the most important factor for this industry is that these companies continue to hurt each other. And consolidation is highly unlikely.


Despite the intense competition, Wal-Mart is still a winner. Wal-Mart has a ton of cash flow, and it’s still growing. There’s no way to predict the future, but gains are more likely than losses going forward. When you combine that with a dividend yield of 2.60 percent, Wal-Mart earns an OUTPERFORM.

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