Four Compelling Reasons to Invest in Walmart Right Now
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Why Walmart is a Strong Investment Choice
Are you considering taking on a new stake in Walmart (NYSE: WMT) but are intimidated by the stock's recent run-up to record highs? It's not an unreasonable concern. It's almost always better to buy good stocks at a discount rather than a premium if you can.
This is one of those cases where waiting for a better price could end up costing you more than it saves. Walmart shares are on a roll because the retailer is firing on all cylinders, and that's not likely to stop anytime soon.
1. Walmart's Sheer Size is a Distinct Competitive Advantage
You probably already know Walmart is the world's biggest brick-and-mortar retailer. What you may not fully appreciate is just how much bigger it is. For perspective, this company operates over 10,600 stores all over the world, with more than half of them located outside of the United States. Its next-nearest competitor is Kroger, with 2,750 locales, while there are just under 2,000 Target stores.
In terms of revenue, Walmart is still larger than e-commerce giant Amazon.
Size isn't necessarily everything, of course. Big companies can be poorly managed too! However, Walmart is run very well, using its size and subsequent spending power to keep competitors in check by doing things those competitors simply can't afford to do.
2. Successful Revenue "Ecosystem" Approach
You're likely familiar with the term "omnichannel," but if not, it's a term used to describe how retailers meld their online and in-store shopping environment into a seamless experience for consumers. However, Walmart is creating new ways for consumers to purchase goods without even thinking about it; shopping becomes part of their lifestyle.
Walmart's subscription-based Walmart+ program exemplifies this lifestyle ecosystem. The company reported double-digit percentage growth in the number of paying members, leading to significant year-over-year growth in its membership income. Given that Walmart+ members enjoy free shipping and delivery, last quarter's growth in e-commerce revenue was largely driven by this convenience-seeking crowd.
Walmart also monetizes its ecosystem in several ways. Recently, the company allowed its vendors and suppliers to pay to promote their goods on Walmart.com. This advertising business's high-margin revenue saw impressive growth last quarter, and the retailer also launched an effort to acquire a television brand, which presents another platform for engaging with consumers and advertising to them. It’s going to be interesting to see all the different ways Walmart will engage with them.
3. Walmart's Appeal to Upper-Income Households
Before the COVID-19 pandemic, affluent households weren't regular Walmart shoppers. However, practicality set in as inflation rose, forcing households earning over $100,000 per year to rethink their budgets. Walmart provided needed goods at better prices, leading to market share gains among this demographic.
Although inflation is finally easing, many newly won customers are likely to continue shopping with the retailer due to all that Walmart is doing to retain them. Recent improvements in the in-store presentation of some apparel lines and the addition of higher-end brands illustrate Walmart's commitment to enhancing its appeal to this group.
4. Walmart's Resilience Across Economic Conditions
Walmart's business is insulated from economic fluctuations because over half of its revenue comes from grocery sales—necessities that customers must buy regardless of the economy. Additionally, more than 10% of its revenue comes from health and wellness products, ensuring that the company can maintain competitiveness during economic downturns.
Even taking the must-have nature of the majority of Walmart's revenue out of the discussion, the retailer can endure challenges. A significant portion of its sales comes from general merchandise, which could be impacted by economic sensitivity; however, consumers will always need basics like socks, light bulbs, and toiletries, making Walmart an essential resource.
Overall Investment Perspective
Investors should maintain perspective regarding Walmart's stock price. While it may not be a high-growth stock like others in the market, Walmart provides a reliable and stable investment opportunity. To the extent every portfolio needs stability, Walmart offers plenty of both, and likely will continue to do so in the future.
Frequently Asked Questions
What are the key reasons to invest in Walmart?
The key reasons include Walmart's competitive size, successful revenue ecosystem, appeal to upper-income households, and resilience in various economic conditions.
How does Walmart's ecosystem improve its revenue?
Walmart's ecosystem enhances revenue through programs like Walmart+, vendor promotions on Walmart.com, and by integrating shopping experiences online and in-store.
Has Walmart's customer demographic changed recently?
Yes, more upper-income households have started to shop at Walmart due to its attractive pricing and improved product presentation.
Is Walmart resilient in economic downturns?
Yes, Walmart's significant grocery sales provide a buffer against economic fluctuations, as those are necessities consumers must buy.
Should investors be cautious about Walmart's current stock price?
Investors should consider the long-term stability and growth potential of Walmart rather than focusing solely on its current high stock price.
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