Walmart, the world’s largest retailer, announced on Tuesday that it will be doing a 3-for-1 stock split, surprising investors. This move reminds us that stock splits can take place at any company and not just high-flying tech stocks like those in the “Magnificent Seven.” Walmart’s shares closed at $165.25 on Wednesday, which is close to its all-time high.
This is Walmart’s first stock split since 1999 since the stock has mostly struggled over the past 25 years, falling behind Amazon and underperforming the S&P 500. Walmart aims to encourage employees to buy stocks, and it believes that the stock split will achieve that goal. More than 400,000 employees participate in the Associate Stock Purchase Plan, allowing them to purchase stocks through payroll deductions and benefit from a 15% match on the first $1,800 they contribute each year.
Doug McMillon, Walmart’s CEO, said that the decision to split the stock was influenced by the company’s growth and plans. He said, “Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates. Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.”
The stock split will increase outstanding shares from 2.7 million to 8.1 million, and the new shares will begin trading post-split on Feb. 26.
What are the implications of the stock split for investors in Walmart?
Stock splits get a lot of attention in the media, especially when significant events can occur at large companies such as Walmart, but they don’t necessarily impact the core aspects of the business. Although the stock might seem cheaper after a stock split, the company’s overall size remains the same when measured by factors such as earnings, cash flow, or revenue.
Valuation ratios are not affected by a stock split, and it simply divides the company’s stock into more pieces, without changing the percentage of the business that investors own.
However, there is some indication that stock splits are linked to a stock’s performance in the following year. This may be due to the momentum leading up to the stock split, which typically happens after significant price gains or increased investor interest. Walmart is hoping that this move will encourage its employees to purchase more stock, which could boost the stock’s value.
Investing in Walmart’s stock has the potential to bring significant value to your financial portfolio.
Walmart has made significant progress in recent years in embracing the omnichannel retail model, adding grocery-pickup stations at most of its stores and building out its third-party e-commerce marketplace to compete with Amazon. Its e-commerce growth has been faster than Amazon’s in most recent quarters, and its grocery business, which makes up more than half of its revenue, has been able to withstand inflation and the pressure felt by consumer discretionary retailers.
In the third quarter, the company reported a 5% comparable sales growth (excluding fuel) and an adjusted operating income of $3.5 billion, a rise of 3%. It also raised its adjusted earnings-per-share guidance for the year to $6.40-$6.48.
Although Walmart is operationally strong, its valuation is similar to the S&P 500’s forward price-to-earnings ratio of 26, which means investors are paying a lot for Walmart’s modest growth prospects. Walmart is a safe stock with a long track record of raising its dividend, but investors should understand that that’s what they’re paying up for. For the right kind of investor, Walmart is a smart buy as it is a well-managed, dividend-paying recession-proof business. However, if you’re looking for growth or a stock that can beat the S&P 500 by a wide margin, there are better stocks to own.
Walmart Long (Buy)
Enter At: 170.01
T.P_1: 170.47
T.P_2: 174.43
T.P_3: 178.55
T.P_4: 180.72
T.P_5: 185.37
T.P_6: 191.58
T.P_7: 195.92
T.P_8: 200.26
T.P_9: 203.98
T.P_10: 207.39
T.P_11: 210
S.L: 166.42
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