Wal-Mart Stores: Strengths, Weaknesses, Opportunities, and Threats
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A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. Today I would like to pinpoint one of the largest chains of discount retail stores in the world: Wal-Mart (NYSE: WMT).
- Coming in second on the 2011 Fortune 500 list, Wal-Mart produced $446,950 million in revenue in 2011, and possessed 10,130 total store locations as of today, including Wal-Mart U.S., Wal-Mart International, and Sam’s Club. This company will not be going away anytime soon in the future
- The company currently pays out quarterly dividends of $0.40, which when annualized puts the dividend as yielding 2.18%
- Since beginning to pay out dividends in 1987, Wal-Mart has continuously paid and raised their payouts, with a minor blip in 2006, from half of a cent in 1987, to 40 cents a quarter presently
- The company’s stock carries a price to earnings ratio of 15.32, a reasonable ratio for a company of such stability and prominence
- Compared to the overall market, Wal-Mart’s stock is relatively stable, with a Beta ratio of 0.32
- The wide majority of items the company sells are necessities, and are bought in all cycles of economic growth and contraction
- From 2010 to 2011, the company’s profits were down 4.2%, mostly suffering from sluggishness in its United States locations; although the economy has shown signs of improving, it is still a far cry from where it used to be
- The company’s track record dealing with how they treat their employees and suppliers has been less than perfect, and has tarnished their record every couple of years
- An important growth market for Wal-Mart, Mexico, hit a huge roadblock as a New York Times report depicted widespread bribery allegations against Wal-Mart in the Mexican market
- Only 30% of shares outstanding are held by institutional investors, and as most institutional investors are long-term investors, this speaks volumes to the lack of confidence long-term investors have in the stock
- International Wal-Mart growth appears to be the future for the company; since 2008 to 2012, the number of international locations has nearly doubled
- The membership discount retail model has proven to be extremely successful for Costco and others, and as Wal-Mart’s Sam’s Club embodies this setup Wal-Mart may turn to this segment of their business for growth
- The upcoming holiday season should prove to be a respectable one for the company as the beaten down U.S. consumer turns to inexpensive alternatives
- The company recently announced they would implant Apple mini-stores in their own stores, and Wal-Mart should benefit from the immense popularity of the Apple brand
- The company competes with Target and other companies to offer the consumer the lowest price, and playing this trying game leads to the squeezing of margins
- A major threat to Wal-Mart further establishing itself in Mexico could prove to be those telling reports of bribery, however so far has not proved detrimental
- A rise in food prices resulting from the historic drought could prove detrimental to Wal-Mart’s bottom line as they try to balance giving value to the customer and making money
Major publicly-traded competitors of Wal-Mart include Target (NYSE: TGT) and Costco (NASDAQ: COST). Target is undeniably Wal-Mart’s most prominent and established competitor. Every day they strive to outdo each other, promising the consumer that they offer the lowest prices. Target is the largest threat to Wal-Mart’s success. Costco Wholesale competes with Wal-Mart’s Sam’s Club. They both offer the membership program system; however, Costco has proven to be more successful in the space.
Wal-Mart possesses many strengths, weaknesses, opportunities, and threats; however, in the end it appears to be a stable giant with a great track record of raising dividends. If one is in search of growth, Wal-Mart is less than ideal. For any long-term investor willing to ride out any market downturns in search of safety, Wal-Mart is a tremendous company, and a buy on any pullback.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.