Monday 6 May 2013

Analysis Wal-Mart

An American giant within food and retail

Company: Wal-Mart

Business: Food and retail. They have several different brand names. As an example in the UK they go under the name of ASDA.

Active: Very well established in North America, they are expanding in South America and Asia. Have some presence in Europe and Africa. Plenty of space to grow into though since they are currently present in only 27 countries.

Interesting fact: They employ over 2 million people! 2 million! They are like a small country no only in terms of work force but also in terms of revenue. Only difference is Wal-Mart makes a profit.

P/E: 15.5

The running P/E of Wal-Mart is currently 15.5 which is not too high but also not cheap. The P/B is in my opinion far to high with its 3.4 which gives according to Graham a value of 53 which is double from what would be very favourable. The earnings per sale is only 4% however food business is pretty squeezed so it should be fine. The book to debt is also ok with its ration of 0.6. the growth of this giant is more or less the same as inflation due to their low profit margin and therefore in the last five years they have had a yearly growth of 3%. This gives according to Lynch a P/E of 9 and according to Graham 15 as acceptable P/E for Wal-Mart. This means that the company today is fairly priced. The dividends that they are paying are 2% which is acceptable for the US and it represents only 31% of the earnings which means they will very well be able to increase their dividends year after year.

Conclusion: It is a great company with still huge potential since they have gone multinational. For the long run it would be ok to invest in them today and just to keep the stock forever. Personally I would try to buy it at a slightly cheaper moment.

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