The classic definition of a value investment is an unpopular company with undervalued shares that makes a lot of money for itself and its stockholders. One corporation that seems to meet all those criteria in today’s market is Walmart Stores Inc. (WMT).

Walmart has taken a real beating and a lot of criticism in recent years because of its inability to maintain revenue growth. Walmart’s share price is lagging behind that of fast-growing rivals such as Costco Wholesale (NASDAQ: COST) and Inc. (NASDAQ: AMZN) even as it offers shareholders a very impressive return on their investment.

On July 31, 2015, Walmart shares were trading at $72.03 (€65.45), while Costco stock was selling for $145.34 (€132.06) a share and Amazon was fetching a ridiculous price of $537.60 (€488.49) a share. Not surprisingly, Walmart looks like a tremendous bargain to many investors at that price, but is it?

The Value Case for Walmart

The value case for Walmart is real easy to make. The financial numbers show us that despite its sluggish revenue growth, the world’s biggest retailer is still making a lot of money. The impressive numbers reported by the behemoth from Bentonville on April 30, 2015, include the following:

  • A revenue of $485.52 billion (€441.17 billion)
  • A net income of $16.11 billion (€14.64 billion)
  • A profit margin of 2.91%
  • A dividend yield of 2.70%
  • A forward dividend yield of 2.72%
  • A free cash flow of $2.243 billion (€2.04 billion)
  • A return on equity of 20.77%
  • A diluted earnings per share number of 4.971

Those numbers compare favorably with those of Costco, another value investors’ favorite that is considered America’s second largest retailer. On May 31, 2015, Costco reported the following financial numbers:

  • A revenue of $115.94 billion (€104.85 billion)
  • A net income of $2.307 billion (€2.10 billion)
  • A profit margin of 1.98%
  • A dividend yield of 4.45%
  • A forward dividend yield of 1.1%
  • A free cash flow of $808 million (€734.20 million)
  • A return on equity of 20.14%
  • A diluted earnings per share number of 5.217

Walmart’s numbers look even better when they are compared with On June 30, 2015, the online retailer reported a set of financial numbers that did little to justify its high share price:

  • A revenue of $95.81 billion (€87.06 billion)
  • A net income of -$188 million (-€170.83 million)
  • A profit margin of .4%
  • No dividend yield
  • A free cash flow of $784 million (€712.39 million)
  • A return on equity of -1.73%
  • A diluted earnings per share number of -.4198

From a straight mathematical standpoint, Walmart is a very good stock. It has a low share price, it pays a respectable dividend and it offers a great return on equity. It also demonstrates an ability to actually generate income—something that does not.

Is Walmart Growing?

The major argument against Walmart is that it seems to be incapable of growth. Revenue figures from recent years indicate that there is some truth to this claim. Walmart’s revenue figure for first quarter 2015, $485.52 billion (€441.17 billion), was slightly lower than for fourth quarter 2014, $485.65 billion (€441.29 billion), indicating that the retailer is struggling to maintain its revenues.

Yet its revenues are still vast and capable of growth. Even though revenues fell slightly in 2015, they were still higher than in 2014. Walmart reported a TTM revenue of $477.18 billion (€433.59 billion) in April 2014. That means its revenues actually grew by $8.34 billion (€7.58 billion) in a little over a year, which is still very impressive.

Walmart is still capable of growth; it just is not capable of the kind of breakneck revenue increases we have seen at Amazon’s quarterly revenues were growing at a rate of 19.88% on June 30, 2015. Between June 2014 and June 2015 Amazon’s revenues grew by $14.05 billion (€12.77 billion), rising from $81.76 billion ($74.29 billion) to $95.81 billion (€87.06 billion) in a year, which is impressive. Yet Walmart achieved a comparable amount of growth and still made money.

Walmart Growing Online

If that was not enough, Walmart has been able to achieve some impressive results in online retail. Global sales at grew by 17% in the first quarter of 2015, according to Internet Retailer. That was down from 22% for all of 2014, but it was still close to Amazon’s 19.88% revenue growth rate, and Walmart did it without losing money.

What’s more interesting is that’s revenues could be close to those of another online retailer popular with investors, Alibaba Group Holding (NYSE: BABA). Internet Retailer estimated that Walmart’s global online sales totaled $12.126 billion (€11.17 billion) in 2014, while Alibaba reported revenues of $12.33 billion (€11.36 billion) on March 31, 2015. Unfortunately, this claim cannot be verified because Walmart does not report a specific figure for online sales in its financial disclosures.

Walmart is also expanding its ecommerce operations by investing between $194 million (€176.28 million) and $291 million (€264.42 million) to upgrade its websites and build new direct to consumer fulfillment centers in 10 countries. Walmart also recently acquired full control of the largest online grocer in China, Yihaodian, in order to expand its business on Alibaba’s home turf.

Some of the expansion efforts appear to be paying off. Walmart is currently number three in Internet Retailer’s ranking of the Top 500 online retailers.

An Excellent Value Investment

The numbers indicate that Walmart is still an excellent stock and possibly the best value investment in retail today. Its financial numbers are impressive, and its shares are definitely undervalued.

The question that investors need to ask now is whether Walmart will be able to maintain those excellent financial numbers in the face of sluggish growth. One also has to wonder if the world’s largest retailer can figure out how to restart its revenue growth in the face of slipping sales.



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