Walmart Investmen.
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Walmart Investment
Based on the investors current financial situation we recommend that she invests in Walmart’s common stock.
Walmart is one of the largest corporations in the world. They have revenue of $231.9 billion and income of $2.22 billion. They have 11,600 stores in 28 countries. Their main source of income comes from retail and wholesale. At their stores they sell almost anything imaginable, from electronics, to gardening, appliances, groceries, furniture, clothing, and much more. Walmart has been in operation since 1950. They have now been in operation for over 68 years.
A good way to tell the financial health of a company is to take a look at the financial ratios of the company. Walmart has a quick ratio of .19 and a current ratio of .81. The reason why the current ratio is so much higher than the quick ratio is because Walmart is a retail outlet, which means that they have a large amount of inventory at any given time. Their current ratio is .19 away from, this suggests a strong ability for Walmart to repay their liabilities.
Other ratios that could be of value is their price per earnings ratio. Their PPE ratio is 26.60. This ratio calculates the price that a single stock is trading for divided by the earnings per share. The meaning of this ratio is how much an investor must pay for one dollar of profit. So in the case of Walmart, an investor must pay $26.60 for one dollar of Walmarts profits.
But best method to determine if investing in a company is a good investment or not is to use the CAPM pricing model to find the required return rate that you need for the risk associated with that particular company. Then by looking at the dividends paid out in the past and the expected growth rate of the company, it is possible to come up with a theoretical price that that companies stock should be trading at. By comparing the theoretical price with the actual price that the company’s stock is trading at it is possible to determine if the stock is over or undervalued. Thus giving the answer as to whether investing in that particular company is a good investment or not.
To start of evaluating Walmart’s stock price we must find their CAPM. The risk free rate that this particular investor has is 5 percent. This number comes from the fact that is investor is able to put his money in a federally insured bank that gives out a 5 percent return. Beta is the sensitivity of the particular company to the market. Walmart has a beta of .19. This is logical because they are positively correlated with the market, meaning if the market is doing well then Walmart will make more profit the better the market does because the more money people have the more people will spend at Walmart. But this beta is very low. This also makes sense because no matter if the market is doing good or doing bad people will have to buy things at Walmart. This is because Walmart sells necessities that will be unaffected by market shifts. By using these numbers we can calculate a CAPM of 6.455.
Then by taking this number we can then find a theoretical stock price. The last dividend paid was 1.96 with a growth rate of 5.7 percent. This will give us a theoretical stock price of 274.25. The actual stock price that Walmart is trading at is 104.78. This means that Walmart stock is extremely undervalued and a very good investment.
To check the growth rate that is associated in the actual stock it is possible to solve for the growth rate using the actual stock price. Using these numbers we find that Walmart has a growth rate of 4.478 percent.
Using these numbers, the present value of of this investment opportunity is 261,734.11.
Walmart’s common stock is primarily traded through the US in the New York Stock Exchange. As of March 28, 2016, the latest practicable date, there were 243,327 common stock shareholders of record. As of March 28, 2016 Walmart had 3,144,335,104 shares of outstanding common stock.
Although investing in common stock comes with more risk than keeping the money in the bank with the guaranteed 5% return it also means that it has potential for a higher return. The investor has enough funds that she is able to put up with the potential loss of the investments. When risk comes more into play, Walmart is a very well known and well established company, meaning that there is a lower risk for failure.
Walmart has acquired several ecommerce based retailers. Examples of which include: Bonobos, Jet.com, and ModCloth. In addition Walmart is reported in the talks to buy more than 40% of India’s e commerce firm Flipkart. This recent development seems to be a direct challenge to competitors Amazon as they have committed to investing $5 billion into the Indian market(including online grocery delivery). In addition, Flipkart owns fashion portals Myntra and Jabong, and controls nearly 40 percent of India’s online retail, ahead of Amazon, and they are also interested in grocery delivery. Business analysts are predicting grocery delivery to be the next opportunity for the ecommerce sector.
While Amazon’s Whole Foods acquisition shows moves this towards this direction Walmart has the vantage of already established grocer expertise. It is obvious Walmart is motivated to enhance their ecommerce market share which Amazon currently dominates at 21.2%. Furthermore Walmart has beat revenue estimates that last two quarters and their shares are up 4.4% for the last three months, and up 51% for the last year. The E-Commerce and Online Auctions industry has a low level of concentration and globalization. This is a huge advantage for Walmart and we are confident they will continue to perform well. These examples have all factored into our decision to recommend our investor to invest in Walmart’s common stock.
With 45 billion in total debt Walmart has a debt ratio of 0.60 which has decreased since 2014 when the ratio was 0.74. This mean that 60% of Walmart’s assets are financed by debt. It has decreased which means that it has been paying off its debt.
Walmart Investment
Based on the investors current financial situation we recommend that she invests in Walmart’s common stock.
Walmart is one of the largest corporations in the world. They have revenue of $231.9 billion and income of $2.22 billion. They have 11,600 stores in 28 countries. Their main source of income comes from retail and wholesale. At their stores they sell almost anything imaginable, from electronics, to gardening, appliances, groceries, furniture, clothing, and much more. Walmart has