Retail titan Wal-Mart's
You see, Wal-Mart's share price reached an all-time high of just over $70 back in 1999 and hasn't come close to those levels since. The funny thing is, the company has only grown stronger over the past eight years, and that streak will not likely end any time soon. Bottom line; don't sell your Wal-Mart. You may want to even consider picking up some shares.
Strapped into consistency
Today, Fools can pick up the shares for about $48. Let's put that into some context. On a price to earnings, or P/E ratio, Wal-Mart trades at just over 16 times trailing earnings and under 15 times expectations for the coming year. In case you were wondering, back in 1999 the P/E multiple was 47, and it has decreased every year since.
The P/E multiple has contracted because the stock price has stagnated. Meanwhile, earnings have steadily expanded -- close to 20% per year. Granted, Wal-Mart is a much larger company these days, but it has still been able to grow the bottom line more than 11% annually during the past five years.
Looking at earnings and related multiples is one approach to valuing a company, but Fools are also interested in a company's cash flow generation capabilities. Wal-Mart has grown operating cash flow nearly 14% each year over the past five years. It grew 14.3% last year and came in almost double reported net income. So much for the law of large numbers.
I haven't mentioned sales yet. Wal-Mart has grown sales in the low double digits each year for more than a decade. It dipped below 10% in 2005 (fiscal 2006) but recovered to 11.7% last year. I don't know about you, but I'm starting to see a consistent trend here, namely, double-digit sales, earnings, and cash flow growth.
So how does Wal-Mart do it?
Wal-Mart appears to defy logic; how can a company with $345 billion in sales keep growing in excess of 10%? Well, every day low pricing, or EDLP, as Wal-Mart calls it, is the primary reason millions of shoppers enter its doors every week. Size and scale also increasingly benefit the company: the bigger it gets, the more it is able to exert pricing pressure on suppliers. Wal-Mart is also a legendary inventory and logistics master, using technology and other means to rapidly turn over sales and efficiently sell the optimal product mix in its stores.
This dominance helped Wal-Mart grow into the largest grocery-store chain, dwarfing the next largest peers such as Kroger
What's not to like?
Admittedly, Wal-Mart is a goliath and must expand sales over $34 billion annually, which is about half of archrival Target's
Fool's final word
To be a Wal-Mart bull you have to be convinced that the company has plenty of opportunity to expand its store base. I don't think domestic markets will be the growth driver growing forward, but they should still perform well, and the international arena is wide open. Last year, international sales occurred in only 12 countries and accounted for a low 22% of the total. And due to low levels of per capita income in many countries, Wal-Mart can work wonders for consumers, as has already occurred in Mexico.
It won't be easy, but Wal-Mart has already logged one of the more impressive performance track records you're likely to find anywhere, and the multiple keeps getting lower, providing downside protection should growth slow slightly going forward. And short-term image issues could serve as an even better price to a still-compelling long-term outlook.
Wal-Mart is a Motley Fool Inside Value recommendation. Best Buy is a Stock Advisor selection. You can try either market-beating newsletter free for 30 days. Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.