Wal-Mart: A Strong Play for Long-Term Investors
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wal-Mart (NYSE: WMT) is a name that has been synonymous with success in the retailing industry for a long time. This success has been brought about by a number of different aspects that have remained unique only to this multi-billion dollar giant. Founded in the early 1960s, Wal-Mart started officially trading in the New York Stock exchange in 1972. From very humble beginnings, Wal-Mart soon rose to become the largest retailer on a global scale and the largest private employer to date. Serving over eight thousand locations worldwide with annual revenues of over $400 billion as of last year, shareholders of this retailer have been smiling all the way to the bank.
Wal-Mart stock is currently trading at around $60, signs that it still has a strong foot hold in the current market. Wal-Mart has, however, recently felt that its long and comfortable streak is slowly being disrupted by newly emerging competitors. The most notable competitors of Wal-Mart are Costco (NASDAQ: COST) and Target (NYSE: TGT). Outside players who nevertheless exert influence on Wal-Mart's policy are Dollar General and, on the international stage - Tesco.
Despite the fact that competitors such as Costco and Target are trying to strategically position themselves in the retailing industry, Wal-Mart still maintains a higher marketing capitalization as compared to the two of them. Wal-Mart maintains a market cap of about $204 billion while Target and Costco trail with $39 billion and $37 billion, respectively.
Personally, as an investor, this has been proof enough for me that Wal-Mart will provide adequate security for my investment in the long run. However, analysts have been keen to point out that Wal-Mart has been surpassed by its main competitors in terms of expected growth.
This can be clearly seen from the price to earnings ratio which currently stands at 13.29 for Wal-Mart, 13.53 for Target and finally 25.39 for Costco. Whether these competitors will surpass Wal-Mart is yet to be seen, but stakeholders have been quick to come to its defense through stating that it pays higher dividends to shareholders, a fact that should not be taken lightly.
Regardless of the mounting pressure from competitors, the recent acquisition of South Africa's Massmart is guaranteed to be a major game changer. After a long battle with both workers' unions and the government of the country, the acquisition was able to go through although not in the way that the management had hoped for. Wal-Mart had been keen on buying all of Massmart's stock, but a wrench had been apparently thrown into the works and it had to settle for a 51% stake.
This, however, has proven to be a great boost to South Africa's retailing industry as the introduction of Wal-Mart as a key stakeholder in the retail industry is bound to increase the level of competition along with the quality of both products and services. Keen investors have noted this as a bold move to expand the reach of Wal-Mart to Africa that is quite likely to result in an increase in the revenue.
Whereas both Target and Costco would prefer to consolidate power in the Western part of the hemisphere, the hands on approach by Wal-Mart that has seen it dive into the African continent is no doubt a message to shareholders that it is willing to take necessary risks to further progress. The recent upsurge in the need for affordable retail products in Africa especially has meant that the introduction of Wal-Mart in the continent will fill this gap. Investors have seen this as the pristine avenue for increasing their profits.
The road to Wal-Mart's glory and widespread recognition has however not all been a bed of roses. Several lawsuits have been filed against this retailer with a number having a great deal of influence on its share price. The most notable lawsuit made against Wal-Mart has been perhaps regarding the issues of gender discrimination. This is issue proved to be a large spectacle with different media opting to give it as much air time as possible.
The lawsuit covered over a million workers whereby it was claimed that Wal-Mart discriminated against female employees. After the case landed in the Supreme Court, Wal-Mart was able to rest easy as the ruling turned out to be favorable to it. The case was dismissed as a result of the fact that there wasn't enough evidence to prove that Wal-Mart was in the wrong.
All in all, whether or not Costco or Target tries to edge out Wal-Mart in its strongholds, it is bound to experience stiff competition. This can be attributed to the fact that Wal-Mart is the largest and cheapest retailer globally, and as the current state of the economy weakens, people will undoubtedly look to it for all their needs.
Backed by assets in excess of $180 billion, critics should not get any thoughts of the age old story of David against Goliath as Wal-Mart is sure to crush its rivals. Bearing in mind that it has also been able to live through quite a number of legal battles, this entity has proven time and time again that it holds the best interest for its shareholders, one of the major factors to consider when investing in any particular stock.
Take it from someone who has been around the ups and downs of Wal-Mart, sticking with it is the best option as there is nothing but a bright future ahead for those willing take a calculated risk.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.