This Company is Still The King Of Retail
Nauman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Over the years, Wal-Mart (NYSE: WMT) has introduced several innovative strategies that have helped it improve its share in the global market while also enabling it the leverage to penetrate into emerging markets. In terms of invested capital, Wal-Mart is a huge business with a total market capitalization of more than $245 billion and average trading volume of more than 9 million. The stock's performance in the recent few weeks has been impressive, showing steady upward trend in the midst of improving investor sentiment and a bright economic outlook.
Dividend and valuation
Wal-Mart has also announced an impressive hike of 18% in its dividend -- one of the largest increases in its history. This has reaffirmed shareholders' confidence in the positive and promising performance of the business. The stock has traditionally enjoyed a good dividend history, with a yield of 2.6% that exceeds industry standards. Moreover, the stock has an impressive forward looking price to earnings ratio of 12.5 and pays its investors $0.47 in dividends on earnings per share $5.02. There has been an almost 100% increase in dividend per share since 2009.
There are, however, specific developments that can jeopardize the stock's recent upward movement. Anxiety over slowing growth rate in China and renewed signs of Europe's economic weakness are two major developments that may determine the stock's performance in the current fiscal year. Nevertheless, Wal-Mart has demonstrated incredible resilience against negative market forces and its stock has posted an impressive performance. This has mostly been the result of the stock's defensive beta of less than 0.4 which means that it enjoys a wide competitive advantage over its major competitors.
Costco Wholesale (NASDAQ: COST) is the biggest competitor of Wal-Mart, with an enormous market capitalization of almost $46 billion and trading volume of more than 2.1 million. Costco's performance in the previous fiscal quarter was extraordinary. Sales rose 8% and the company reported EPS of $1.1, which was more than what the sell-side was looking for this time around. The business has registered healthy growth so far in the current fiscal year, with an increase of 6% in US sales, while international sales increased by 5%.
The stock is currently trading at its highest price in the last 52 weeks. Forward price to earnings of 21 has been as impressive, and the stock pays its investors $0.275 in dividends on earnings per share of $4.11. Costco also spent $3 billion to pay a special dividend of $7 per share late last year. With a current dividend yield of 1.1%, I believe that the stock will continue to enjoy favorable shareholder sentiment. However, when judging the stock's financial metrics next to Wal-Mart's, I firmly believe the latter to be more secure and viable investment alternative, especially considering its outstanding performance in the last couple of quarters.
Target (NYSE: TGT) is another rival of Wal-Mart that has posted a notable performance in the last few quarters. The stock has a market capitalization of more than $43 billion and an average trading volume of 5.5 million. On account of encouraging market conditions, the company has maintained a healthy dividend history with a dividend rate of $0.36 against earnings per share of $4.38 -- with a current dividend yield of 2.2. Also, analysts expect $4.69 in EPS for the fiscal year 2014, and the current stock price is 14.3 times that figure.
Although all these leading financial metrics seem run-of-the-mill when set against Wal-Mart's recent financial performance, when evaluated independently; the stock's performance since the beginning of this year is commendable. Although Target is one of the largest discount retailers in the US, with yearly revenue of almost $75 billion in 2012, Wal-Mart remains a more attractive option for those investors seeking higher capital returns and security on investment.
A rising threat
Despite the fact that Wal-Mart continues to be a secure investment and investors are encouraged about the stock performance, I won't underestimate its many competitors, especially as they endeavor to penetrate into emerging markets. PriceSmart (NASDAQ: PSMT) is a company that continues to make an impression by switching to a strategy of putting into practice a low margin policy in the successful attempt to increase its sales. Consequently, most of its revenue growth has come from same-store sales and not through new stores expansion alone. No wonder, its revenue forecasts have continuously surpassed expectations.
The bottom line
Despite of the rising competition, it's my view that Wal-Mart will continue to expand and capture market share in the domestic and international markets, finding new ways to innovate, as it has proven time and time again. From entering the online consumer electronics market to expanding to emerging economies, Wal-Mart will offer higher returns and greater yields to investors in the future. For this reason, I strongly believe that the stock remains quite compelling on a risk-adjusted basis and would prove a lucrative addition to your portfolio.
Nauman Aly has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale and PriceSmart. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!