Wal-Mart's Push Into India May Spread the Company Too Thin

Much of the narrative around Wal-Mart (NYSE: WMT  ) in recent years has been its push into more international markets. Now, the company has announced that it will be opening 50 new stores across India. On today's Stock of the Day, Motley Fool analyst Michael Finarelli notes that while Wal-Mart has spent quite a lot to make this highly touted international push, the returns from the effort thus far have dramatically lagged returns from its domestic business due to much thinner margins in other markets.

In the video, Mike breaks down the numbers for investors, showing the enormous percentage of operating income generated from overseas operations that the company spent on capital expenditures to build out and operate its overseas footprint over the trailing-12-month period ending this January. Based on this and the thinner margins abroad leading to dramatically less operating income from international operations, Mike says he would much rather see the company continue to focus on a strategy of leveraging domestic operations.

So is Wal-Mart a buy ahead of this expansion into India? Mike says he's staying away for now. He isn't a fan of this strategy and says these capital allocation decisions concern him. And with the ever-increasing threat of competition from Amazon.com or Costco, he's just not interested in Wal-Mart today.

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  • Report this Comment On April 08, 2014, at 4:47 PM, Mutineer57 wrote:

    Why India needs Wall Marts? It will destroy all the small business there!

  • Report this Comment On April 14, 2014, at 8:25 PM, tsservices wrote:

    I don't think Wal Mart would be so naive and foolish as not to have thoroughly studied the Indian market before deciding to take the plunge. It would seem it has and its decision to go for it must be based on a 'pick and choose niches' basis. Viable niches that inevitably point to the larger cities, while at the same time not unduly cornering all of the market to stifle out small entrepreneurs.

    That's why its choosing to open 50 instead of 500 or a 1000 stores. It's a careful maneuver and one that may reap extraordinary rewards for the company in future given the huge Indian market. Long term investment strategy is what a company does and that's exactly what Wal-Mart is doing. I support the move and I certainly would not be bearish if I had funds invested in the giant retailer.

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