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wal mart's peg


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so, I was just looking at WMT's yahoo finance page and saw that their PEG was 1.14... Their market cap is an astounding 192.4 Billion; larger than BRK, T, GOOG, JPM, and JNJ. Really, the only companies of note that they are smaller than are MSFT and XOM. I don't know, they just seem too big to grow that fast (and, by the peg ratio, be considered anything close to a growth stock..

 

To me this seems pretty freaking optimistic, at least in the long run.

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...at least in the long run.

 

Well, the PEG ratio has nothing to do with the long run, so your criticism may be valid.

 

The is pretty meaningless and is just a snapshot in time.  You need to analyze the business and financials enough to understand what 'normal' and what the growth may look like over several years.

 

Walmart has low margins so if they have some roadmap to increase margins to a steady state level above those of today, they may experience faster earnings growth.  I agree that fast sales growth is not in the cards.  sales != earnings.

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Yes, their margins may drift slightly higher but WMT will never have robust margins. Anyone who knows Wal-Mart's business knows that they focuses on turns/working capital not high margins. A department store focuses on high margins. Wal-Mart is more impressive in working capital (and the cash flow statement), while department stores focus on high margins (looks good on the income statement).... at least when there's a cyclical economic upturn. In a downturn, department store margins get hammered (very cyclical from my experience).

 

If you look at the WMT stock price it had a huge move up during the profitable Superstore rollout of the later 1990s. That new concept, aka store growth, drove sales and cash earnings. I believe, this is were Buffett kicked himself for being too timid on price with WMT. Yes, profitable store growth= cash earnings for WMT, but it's a mature business today. Unless, International works out like it has in Mexico in China.

 

I would buy it for modest margin expansion and modest sales growth.... and its competitive advantage. I haven't done much work but at a lower price I would.

 

But today, I get stuck at the Labor issue... it would destroy there beautiful business model--then, there' s a long way down. Even Lee Scott said it during his departure... maybe it was just a shot across the bow of labor, but I can't get comfortable with this....... except at the right price.

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