Question

Explain in 700 words why you would or would not recommend investing Walmart stock.

• Describe the relationship between the value of the stock and the price to earnings ratio.
• What information does the Market Capitalization (Market Cap) and Beta provide to the investor?

Answer 1

Walmart is one of the largest retail chains in the world. It offers everyday use merchandise at discounted prices. The company has three segments: Walmart U.S includes Walmart's companies in the USA, Walmart International includes its international operations and Sam's Club handles its warehouse membership with the companies. Walmart's revenues are generated from the footfall that it receives, however with the advent of e-commerce, the customer footfall is expected to reduce. This is one of the significant issues faced by Walmart with the e-commerce giants such as Amazon gaining a significant presence. Walmart's acquisition of Flipkart an Indian e-commerce portal to rival Amazon is also seen as a risky decision as Flipkart is yet to turn profitable. One of Walmart's major costs arise from its employee salaries. Walmart has recently increased the hourly rates of its employees and also offered them a bonus. However, with the minimum wage likely to increase it will put severe pressure on Walmart's margins. Walmart is also involved in a lot of legal issues which may lead to it paying huge settlements. These are a few reasons why investment should not be done in Walmart's stock.

P/E ratio is defined as Price to Earnings per share of a stock .It helps to determine if the stock is currently overvalued or undervalued as compared to its peers. It indicates how much the investors are willing to pay for every dollar of income for the company. A high P/E compared to its peers may indicate the stock is overpriced.

Beta indicates the risk of a company relative to the market. Market Capitalization can be found by multiplying the market price of the share with the number of shares. It indicates the size of a company.