Despite the massive size, Walmart (WMT, Financial) performed pretty well in 2016 as the stock was up nearly 13%. Nowadays, customers are less likely to visit retail stores mainly due to the gradually rising online shopping trend. The company’s weak presence in the e-commerce market compared to its competitors was the primary reason behind the steep decline that started in 2015.
However, that was the past as Walmart is aggressively focusing on achieving a stronghold in the e-commerce market. The company acquired Jet.com for $3 billon in September 2016 which accounted for the first major step to strengthen its position in the e-commerce space. It appears the company has made a great move as the deal permits it to access Jet.com’s innovative pricing software.
On top of that, Jet recently acquired the online footwear retailer “ShoeBuy” for nearly $70 million, intended to compete against Amazon’s (AMZN, Financial) Zappos. On the other hand, the company has future plans to spend approximately $1.1 billion on its e-commerce operations in fiscal 2018, a surge of $200 million compared to $900 million this year.
On the other hand, the company’s U.S. store business performs well, producing an extensive streak of positive comparable sales growth on the back of initiatives such as higher wages as well as superior training for employees.
It is well known that Walmart is the biggest grocer in the U.S., and the grocery segment plays a vital role for the company as it is responsible for producing a major portion of its overall revenue. Walmart’s foremost competitor Amazon is also belligerently focusing on boosting its grocery business.
Keeping this in mind, Walmart, to maintain its leading position in the grocery segment, has already started online grocery service in more than 100 markets which places it ahead of Amazon.
To counter Amazon’s Prime subscription service, the retail giant has taken a step in the right direction by offering free two-day shipping on millions of products for orders placed at more than $35. The company is following a simple policy by proposing the finest prices and free, fast shipping which sounds promising.
When it comes to dividends, Walmart has a remarkable dividend growth history. The company has been paying quarterly dividends since 1974 and pays a dividend of 50 cents per share which signifies an impressive dividend yield of 2.91%.
Conclusion
Though Walmart is facing some temporary problems mainly due to its weak online sales, it is putting in a lot of efforts to snatch a considerable share of them. Most significantly, the company is highly profitable which can be clearly verified by looking at its dividend growth history.
Walmart appears to be a better contender compared to its rivals because of its cheap valuation. The stock currently trades at a healthy price-earnings (P/E) ratio of 14.93. Walmart is a buy at market price.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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