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If you have an idea of owning stock in a retailer walmart (NYSE:WMT) It’s natural not to be excited. That’s far from a growing name. And at a price of 26 times this fiscal year’s expected earnings, this stock is by no means a bargain. Either way, there are still plenty of good reasons to own Walmart stock. Three of them stand out among the rest.
1. It is the largest company in the retail industry.
The largest company in a particular business may not inherently be the best investment. But it’s naive to act as if certain companies became market leaders through sheer dumb luck. Most of the time, the biggest companies in their industry became that way by doing something better than other companies.
Against this background, there is a reason why Walmart has become the world’s largest brick-and-mortar retailer. The company has changed its ways since Sam Walton founded it with a single store in 1962. The idea is to offer shoppers a wide range of products at the lowest possible prices.
Since then, the company has built or acquired an additional 10,000 stores domestically and internationally, all with a focus on remaining a leader in the low-end segment. According to figures, Walmart thus now sells about a quarter of US groceries and accounts for a healthy 17% of total US retail consumption. capital one.
In terms of prospects, the next closest competitor the goal operates only about 2,000 stores and reportedly has less than half of Walmart’s sales in the United States.There are also only about 2,750 pieces. kroger-Owned grocery store. Walmart’s dominance not only emphasizes that it’s doing the right thing, but also often deters rivals from building competing stores in the same area.
2. Walmart is more adaptable and innovative than it seems
At first glance, Walmart looks like the same company it was five, 10, or even 30 years ago. This matters because consumers are changing and retail is changing with them. But take a closer look. Walmart is new and improved in many ways, and not just because it’s starting to take e-commerce more seriously.
Consider foraying into advertising as an example. Walmart.com is more than just a place where the company sells its products (or products from third-party sellers) online. It is also an advertising platform in its own right. Walmart generated $3.4 billion worth of advertising revenue last year by paying retailers to help brands promote certain products on Walmart’s e-commerce site.
This is outstanding for a relatively young venture. It’s also high-margin revenue earned in a way that doesn’t dilute or cannibalize Walmart’s existing retail efforts.
Meanwhile, the launch of Walmart+ in 2020 was a direct attack on: Amazon Prime offers members a subscription-based means to have online orders delivered to their home for free. I can’t say Walmart+ has been a huge success, but it’s at least a sign that the company is willing to try new and unusual things. Some of them work.
3. Its size gives it great influence.
Last but not least, Walmart’s sheer size gives it a significant advantage over its competitors. Not only does it discourage grocers like Kroger and discounters like Target from opening stores in neighborhoods, but it does so in other ways as well.
Thanks to its wide footprint, Walmart can push back on brands when needed. That’s exactly what we did a little more than a year ago — asking vendors to rein in their own production costs or risk not being able to put their increasingly expensive products on Walmart store shelves. I was there. Suppliers responded in most cases.
Wal-Mart’s massive size also means it has deep pockets, allowing the retailer to make meaningful acquisitions that others wouldn’t be able to make.Case in point: Last month, Walmart revealed plans to acquire consumer electronics brands. Vizio A whopping 2.3 billion dollars. Walmart is already Vizio’s single largest retail partner. The deal will ultimately allow retailers to reap more of the profits they already generate just by having the company’s products in their stores.
Vizio also boasts 18 million users of its SmartCast smart TV operating system. This is a new kind of advertising medium that Walmart can integrate with and complement his nascent advertising business at Walmart.com.
Walmart stock offers low risk and fair reward
Is Walmart the perfect stock pick? No, there are certainly risks. Its size is one. This has obvious advantages, but the larger the company, the more difficult it is to manage.
This may have been at the heart of the chronic shortages and empty store shelves back in 2014. And not all efforts have worked out as expected. After acquiring men’s clothing brand Bonobos for $310 million in 2017, he sold the exact same brand for just $75 million last year. These small mistakes can add up over time.
But overall, the retailer has been almost textbook consistent, with more profits than losses. In fact, since the beginning of 2016, we have not failed to achieve year-over-year sales growth in any quarter, and for that matter, in the years leading up to 2015, we have not reported year-over-year sales growth in every quarter. I am. It was a year of restructuring, right after Doug McMillion took over as CEO and began implementing long-overdue changes.
The bottom line? There may be tickers that show higher growth rates. But there aren’t many other companies that have Walmart’s size and drive to simply overcome any challenges it may face. That alone is worth the stock price premium.
Should I invest $1,000 in Walmart right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. James Brumley has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
“3 Reasons to Buy Walmart Stock Like There’s No Tomorrow” was originally published by The Motley Fool.
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