Novice Investing - WalMart Hit The Wall

Date: Monday 01st 2008f December 2008 05:05:51 PM

WalMart Hit The Wall - 02/22/2006

By: Novice Investing Staff

Wal-Mart Stores Inc. (WMT) seldom faces obstacles that it can't handle over the last twenty five years. It is now the biggest retailer on earth with revenue in the hundreds of billion. On Tuesday February 21st 2006, Wal-Mart reported 4th quarter profit of of $ 3.59 Billion or 86 cents per share. Those little mark up that the company gave, amounts to a considerable sum of profit for shareholders. Share price fell due to the unenthusiastic guidance from the company.

For the current fiscal year, Wal-Mart now expects to earn $ 2.88 to $ 2.95 per share as opposed to $ 2.95 per share estimated by analysts. The company points to higher energy cost as the reason of slowdown in sales and ultimately, profit. Wal-Mart is known to cater to low-end wage earners which are pinched by energy cost.

Furthermore, as the company grows bigger, it is even harder to generate additional sales growth. Although the company planned to open 355 stores this year, it had $ 288 Billion in sales last year. If the company is to grow 10% in sales, Wal-Mart needs an additional of $ 28.8 Billion and counting. How many additional Twinkies does it have to sell? Unimaginable.

Wal-Mart is not the company that will be going out of business anytime soon. While its balance sheet has a negative net cash of $ 22.26 Billion or $ 5.35 per share, it can erase these debt within two years with its current profitability. However, as it grows, it is harder and harder to achieve a 10% growth in revenue. The company has tried to expand aggressively overseas but it has yet to bear its fruit. In recent years, long term debt has been creeping up to finance overseas expansion. It is valued at a forward price earning ratio of 15.35. That is not terribly undervalued, considering the expected level of growth and higher debt level.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Wal-Mart Stores Inc. (WMT) or any other securities.

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