Walmart (WMT -0.37%) stock has gone on a tear, as consumers adjust to life in the time of COVID. In mid-April it hit its all-time high which is really saying something for a company that as has been publicly traded since 1970.
That peak saw Walmart close at nearly $160 per share. Perhaps with some impressive fundamental growth rates currently at its back, it can reach another milestone and cross the $200 barrier before this year is through.
Image source: Walmart.
Headwinds? What headwinds?
Unlike many of its peers in the retail sector, Walmart did well in the thick of the coronavirus pandemic and is continuing to expand in what one hopes are the virus's waning stages.
Revenue for fiscal 2022 ended Jan. 31 was nearly $573 billion, 2.4% higher year over year. That number would have topped the almost 7% increase of 2021 had it not been for the sell-off of selected international operations. Regardless, the retail giant's top line continues to rise -- an admirable feat given the supply-line disruptions it had to cope with in the latter part of the year.
As for profitability, we should always bear in mind that retail is a thin-margin business. Even with the many cost-shaving innovations it has brought to the sector, Walmart's profitability is never outrageously high.
But that's speaking relatively. Thanks to its famous efficiency plus the emergence of new "asset-light" businesses such as the in-house ad unit Walmart Connect, adjusted operating (i.e., not in accordance with generally accepted accounting principles, or GAAP) net income rose by 11% to nearly $26 billion for the year.
As ever, Walmart will continue to be a destination for more budget-minded consumers -- particularly if inflation remains a worry. In such environments, people tend to concentrate their spending on essential goods rather than luxury items. This plays well to Walmart's strengths as a value-priced retailer.
Those low costs will likely result in solid yet generally unspectacular growth in the near future. On average, the analysts tracking Walmart stock believe revenue will rise by 3% this fiscal year over the previous one, with per-share net earnings inching up by 4%. Those figures for the next fiscal year are a respective 3% and 8%.
Outside of sustained fundamental growth, Walmart adds to the value of its stock by also paying dividends on a steady and reliable basis. In fact, with a 49-year streak of increasing dividends, the company is about to graduate from Dividend Aristocrat to Dividend King.
That said, Walmart's yield isn't monstrous, at 1.4%. That's basically in line with the payouts of fellow top retail names Target and Kroger. What's more, Target is already a Dividend King, and Walmart has the highest payout ratio of the three. The company, then, isn't the monster dividend powerhouse of the retail world.
To top two Benjamins
So let's get to the nitty-gritty. Before we pop open the champagne, are we going to see Walmart stock finally cross the $200 barrier?
While I like Walmart as a business, particularly since it always seems to find a way to grow no matter its size and the challenges it faces, I don't see any major catalyst that'll push it that high. The anticipated growth rates for this and next year aren't lofty enough to keep juicing a stock price that has already seen big leaps on those trailing double-digit improvements.
I think the biggest excitement around Walmart this year will be the looming divestment of its majority-owned, India-based Flipkart e-commerce subsidiary, not with the core company itself. The latest scuttlebutt is that Flipkart will hit the stock market at some point this year after a flashy IPO.
This should drain attention away from the parent company and make some reevaluate its growth prospects. Although Flipkart is not a huge part of Walmart's sprawling business, it is nevertheless sizable by general retail industry standards and was a motor for growth in its latest fiscal year, with a 25% improvement in revenue for that time period.
At the end of the day, Walmart is a fine stock to own. It's an excellent and well-managed business that should continue to grow in the years to come, throwing off reliable and regular dividends as it does so. I just wouldn't bet on it smashing through the $200 per-share ceiling before 2023.
