Why I wouldn’t buy Walmart Stock

Wal-mart is one of those stocks that’s often recommended as a Recession-proof stock. It’s also often recommended for a Dividend Stock portfolio. However, I’m going to go against the tide and say at this current price and valuation, I can’t recommend this stock.

Why I don’t like Wal-mart stock

DECLINING TOTAL SHAREHOLDER EQUITY

2017-77,798,000; 2018-77,869,000; 2019-72,496,000

As you can see, the trend is a decrease in TOTAL STOCKHOLDER EQUITY. This is not a good sign.

DEBT

Debt is also another consideration when evaluating a stock. Debt is not necessarily a bad thing in of itself, especially at our current interest rates. However, looked at in the context of other things it can be revealing, is the debt creating growth? A brief look at the LONG-TERM DEBT reveals increasing numbers:

In 2017 it was 36,015,000 and now in 2019 it is 43,520,000

FREE CASH FLOW

What about the ever-important Free Cash Flow? That has decreased every year for the last three years. It was 20,911,000 in 2017 and now it’s 13,889,00 in 2019. That is a 33.6% decrease in FREE CASH FLOW in just two years! Something is seriously amiss here.

Cost of Revenues

Revenues are up but look at the cost of those revenues. It has increased every year. Wal-mart just came off of a miss on revenue expectations this past quarter. I don’t think that will be the last time we see that.

The stock is currently trading at a P/E of 23. The company is simply not putting out enough earnings nor positive signs of growth to warrant paying such a price. Year over Year EPS growth was only 1.63%. Why is it trading at 23 times?

Revenue growth in the last five years has only been 1.53%, The five year Cash Flow Growth rate is NEGATIVE 6.89%. These are not signs of a company that is growing, these are signs of a company that is SLOWING down. Not something that someone should pay 23 times for.

Dividend Growth

If dividends are your thing, this past year your annual dividend growth was only 1.92% (meanwhile Targets was 3.13%). So, it doesn’t really function well as a dividend stock either because it’s not growing its dividend at a rate higher than inflation. You’d be better off buying a less mature company who is growing its dividends at a quicker pace, preferably more than 6%.

Walmart’s earnings report today showed a miss in both revenue and earnings. I see no reason to choose Wal-mart over Target; or a plain old total market ETF if that is your thing. TGT has a better Return on Equity, better Cash Flow growth Rates, Higher projected growth, and currently trades at a better valuation. The dividend is growing above inflation as well.

DISCLAIMER-I don’t own Target or Wal-mart