About 80 percent of households in the United States go to Walmart to do their regular groceries and for their discounted shopping needs. This multinational retailer, considered the largest in the world in terms of revenues and the number of employees, operates in 24 countries. It is also one of the most valuable companies in the world with a market cap of over $74 billion. Those who have an investment in this retailer have done so to reap the supposed benefits that come from its sheer size, the scale of operations, and massive reach. This article identifies and discusses the pros and cons or advantages and disadvantages of Walmart stock.
A Bargain or a Bust: Advantages and Disadvantages of Investing in Walmart Stock
Pros: Advantages of Walmart Stock
Walmart is a retail giant. It owns chains of stores across the United States and has since expanded in different countries. However, aside from its traditional brick-and-mortar operations, the company has also ventured into electronic commerce.
It also has several private labels. About 40 percent of products sold in its stores are Walmart-branded items. The company has also made several acquisitions to expand its e-commerce business. The following are the advantages of investing in Walmart stock:
• Large-Cap Stock Advantages: One of the advantages of Walmart stock is that it is a large-cap stock. Large-cap stocks have advantages over mid-cap stocks and small-cap stocks. These include demonstrated stability, established leadership, availability of market information, and lower liquidity risk.
• Historical Dividend Payout: The company does not issue preferred stock but its common stock has a strong history of dividend payouts. This is an indicator of strong financial performance. Investing in Walmart through its common stock is ideal for income-seeking investors.
• Considered as A Defensive Stock: Another advantage of Walmart stock is that it is a defensive stock due to the fact that it sells products that are consumer staples. The company has remained stable regardless of the economic conditions. This company can be part of a defensive investing strategy.
• Strong Growth and Returns: The company has noted that its stock has a 12.7 percent return on investment and it has provided substantial returns to its investors amounting to $16 billion year-to-date. These are notable metrics considering the fact that Walmart is considered a large-cap stock and also a defensive stock.
• Expanding Retail Footprint: Walmart operates a chain of grocery stores, discount department stores, and hypermarkets. It has also expanded into e-commerce or digital retail with the launch of its global online storefront in 2016 to compete against online retail giants such as Amazon and Alibaba.
• Other Streams of Income: Remember that the company owns several private labels across different product categories sold in its stores. These include personal care products, food and beverages, pet items, clothing and apparel, furnishing and appliances, and school and office supplies, among others.
Cons: Disadvantages of Walmart Stock
Walmart is indeed the largest retailer in the world but this does not mean that its dominance is secured. Competition has forced the company to adapt to trends and also explore ways to innovate and add further value to its customers and target market.
The changing preferences and consumption behaviors of the consumer must also be taken into consideration because such presents a risk if retail companies such as Walmart fail to adapt. The following are the specific disadvantages of Walmart stock:
• Challenges in Profit Margin: Walmart is a defensive stock but it still struggles to maintain its profit margins due to different factors. These include inflation and poor economic conditions that affect the sales of its consumer discretionary products and the persistence of intense competition in the retail market.
• Impacts of Competitive Forces: Remember that the company competes with other big box retailers in the U.S. and established digital retailers or e-commerce companies. Competition forces it to spend more on marketing and expansion while also raising the bargaining powers of its consumers and suppliers.
• Struggling Global Presence: It is true that the company operates outside the U.S. but it has several failed ventures. The company has failed to gain a foothold in Germany, Japan, and South Korea. It also sold a chunk of its shares in its subsidiaries in countries such as Brazil and the United Kingdom.
• Exposure to Several Risks: Stocks have risks and specific types of stocks have more exposure to more particular risks. A notable disadvantage of Walmart stock is that it is more exposed to the negative effects of inflation and the impacts of poor macroeconomic indicators such as employment rate.
• Concerns About Its Large-Cap Status: The company has strong historical growth and has demonstrated returns but these do not guarantee its future performance. Some analysts believe that Walmart has limited growth prospects due to the fact that it is already a large company that is nearing its peak.