Walmart valuation

[vinod1]

I put together my rather sloppy valuation work on Walmart at the link below. I usually try to document my thesis for myself in a 1-2 page summary to make sure that I have record of my reasoning for any investment. Any feedback/critique would be much appreciated.

 

I have went through all the AR from 1972 on and jotted down notes that strengthen at least in my mind their competitive advantages but I have not included them in the document as it is takes too much time.

 

http://vinodp.com/documents/investing/WalmartValuation.pdf

 

Thanks

 

Vinod

[UhuruPeak]

Thanks Vinod.

Looking at the threats on pp3-4, I don't see mention of the Aldi (Germany) or Leader Price (France) companies though.  Aldi in particular is now present in the US, and its low-cost culture is second to none; I did shop in some of their stores in my youth,  it is not pretty but their prices are rock bottom.  Basically, I won't dream of going back unless I need to start my financial life from scratch again, but part of it is that I've been spoiled with the taste of (comparative) luxury available at Target or Costco  ;D

Did you lump them with the Dollar stores, or perhaps the grocery stores? I think they deserve their own category and could become players in the ultra low cost segment.

[shalab]

Thank you for sharing thr analysis. I think you have done an excellent analysis of competitive advantages and the economy of scale. I think the numbers are slightly off ( especially EPS, # of shares outstanding in 2011 ) which makes your estimate conservative.

[shalab]

The other interesting thing is how much Amazon and other online retailers can take market share from traditional retailers. Amazon has a service called "Amazon Fresh" which allows online grocery shopping in select zip codes.

 

 

[vinod1]

Thanks Vinod.

Looking at the threats on pp3-4, I don't see mention of the Aldi (Germany) or Leader Price (France) companies though.  Aldi in particular is now present in the US, and its low-cost culture is second to none; I did shop in some of their stores in my youth,  it is not pretty but their prices are rock bottom.  Basically, I won't dream of going back unless I need to start my financial life from scratch again, but part of it is that I've been spoiled with the taste of (comparative) luxury available at Target or Costco  ;D

Did you lump them with the Dollar stores, or perhaps the grocery stores? I think they deserve their own category and could become players in the ultra low cost segment.

 

I did look that deeply into either Aldi or Leader Price. I need to look into them in more detail. Thanks!

[vinod1]

Thank you for sharing thr analysis. I think you have done an excellent analysis of competitive advantages and the economy of scale. I think the numbers are slightly off ( especially EPS, # of shares outstanding in 2011 ) which makes your estimate conservative.

 

I approximated up the shares a little bit since Walmart's fiscal year does not match up to calendar year and I wanted to normalize it to calendar year. I need to double check this.

 

Vinod

 

 

[woodstove]

Thanks for sharing your report Vinod.  Nice work.

 

I bought WMT yesterday morning.  Comfortable below $50.

For exactly the reasons you mention in your report.

Your work-thru of scenarios is much more detail than I did,

and I like your analysis a lot.

 

 

[Aberhound]

Very interesting analysis. I noted that even if the sales growth was a slow 2% with PE contracting to 10 or if sales growth was 4% with PE contracting to 7, the two extreme scenarios, yield seemed to me a better risk/reward ratio than long term US govt bonds.

 

Maybe Marty Armstrong is right in predicting that by 2015 faith in government will be so eroded that private corporations become the new safe haven. In times of eroding Rule of Law and more authoritarian governments do some shares become safer than government bonds? Walmart is not like oil companies where there is a risk that the government might want your business.

 

Bonds of course are purchased to ensure that you at least get the principal back. But in these volatile times where large debts create the risk of default or currency swings why don't investors like Prem buy Walmart shares instead of long term US government bonds? Short term price fluctuations should not matter to long term investors who are in a position to buy on dips.