Wal-Mart is Dead





Investing in a stock that has for years been sputtering on the market is challenging. One may ask himself, “if I invest in this stock, what if it sputters for another ten years?” However, one should find comfort in that a sputtering stock will eventually be awoken by the growth beneath.

Wal-Mart (1989-2010)

Wal-Mart Stock is Dead

Looking at its chart, there is no question Wal-Mart sputtered from 2000 to 2010. However, a sputtering stock is advantageous to the successful investor, if of course that stock is coupled with underlying business growth. For instance, while Wal-Mart’s market capitalization has hovered around $180 billion, its underlying business has grown. To explain, from 2000 to 2009, Wal-Mart’s revenue grew from $191 billion to $405 billion, net income grew from $6 billion to $14 billion, earnings per share grew from $1.40 to $3.66, book value grew from $31 billion to $70 billion, and because its stock remained flat, Wal-Mart’s P/E fell from 30 to 13, while its dividend yield grew from 0.40% to 2.1%. The successful investor would then conclude, based on its underlying growth, Wal-Mart’s stock was undervalued. Conversely, the common investor would conclude, based on its stock chart, Wal-Mart’s stock was dead.

Lesson Learned 5: A sleeping stock will eventually be awoken by the growth beneath.