Why Now May Be The Time To Nibble On Wal-Mart Stock

Why Now May Be The Time To Nibble on Wal-Mart Stock

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Walmart (NYSE:WMT) has become the IBM (NYSE:IBM) of retailing this year, a stock analysts love to trash and traders even short.

During 2015 the Bentonville, AR based retailer has lost nearly one-third of its value, 31.5% of it. This has taken its market cap from $246 billion down to $188 billion. Meanwhile Amazon (NASDAQ:AMZN), worth less than $150 billion at the start of the year, has blown by it, rising by 112% to $309 billion.

WMT stock chart

Wal-Mart stock and Amazon stock price comparison by amigobulls.com

This despite the fact that Wal-Mart brings in more revenue each quarter, $120 billion most recently, than Amazon will this year, even by the most optimistic estimates. This is also despite the fact that Wal-Mart is the second-largest e-commerce company, and that its Wal-Mart Labs has brought forward many technology innovations including an open source system called OneOps, designed to halt cloud lock-in, like that found by users of Amazon Web Services.

What really hacked-off analysts about Wal-Mart was CEO Doug McMillon’s announcement last month that it will double-down on those tech investments and spurn profit for the next two years, something Amazon did for a decade. “Wal-Mart thinks it is Amazon and it is totally not” ran one headline.

No, Wal-Mart is not Amazon. But it’s not IBM either.

Wal-Mart has plenty of cash flow with which to chase Amazon, $15 billion of operating cash flow last quarter alone, more than double what Amazon generates.

Wal-Mart has already begun a transition toward smaller stores, called Neighborhood Markets, to tap urban markets it previously did not reach.

Wal-Mart has over 6,200 stores worldwide, which if activated as delivery points could give Amazon a run for its money at low cost.

Perhaps more important is McMillon’s decision, announced in February, to start raising line workers’ pay. Given that Wal-Mart has 1.4 million employees in the U.S., and its move was countered by other large retail employers, this has produced a powerful stimulus to the U.S. economy, with many of the 268,000 private sector workers hired last month brought in specifically to serve the needs of low-wage earners, who now have more money in their pockets.