Should Investors Be Playing It Safe With Walmart?

Walmart Inc. (NYSE: WMT) is an incredibly well-known multinational discount grocery store and retail department store chain. The American company operates under various names in different parts of the world. It also owns the popular membership retailer Sam’s Club as well as other international companies such as Asda Stores, Seiyu Group, and Flipkart.

In the past 5 years, WMT stock has grown nearly 115%. The stock is currently up 18% year-to-date, with the majority of its growth occurring during the last six months of the pandemic. WMT stock is currently near its all-time highs, but may still be a solid option for long-term investors during the current market climate. Combining the recent news of U.S. President Donald Trump contracting coronavirus with the already tumultuous upcoming U.S. election, it is as good a time as ever for investors to be evaluating "safe bets" to diversify their portfolios.

Walmart has beat expectations in three out of the last four earnings announcements. In the most recent earnings report, the company beat expectations by 24.8% and reported an earnings per share (EPS) of $1.56 as compared to the expected $1.25. In fact, the last time Walmart missed expectations was in the first quarter of 2020, missing by a margin of just $0.05. At the moment, Wall Street currently expects Walmart to drop its reported earnings down to $1.18. Walmart has a trailing twelve month EPS of $6.27.

Walmart’s current price-earnings ratio (P/E) is 22.42. The company also has a forward P/E of 27.78, and a trailing P/E of 22.31. Walmart has demonstrated consistent revenue growth on an annual basis, but struggled to maintain consistent growth in net income.

Over the past 12 months, Walmart produced $542.03 billion in revenue and accumulated $520.70 billion in expenses. The company currently has $9.47 billion in cash and $236.50 billion in total assets according to its balance sheet. Total liabilities are presently $154.94 billion including $70.24 billion in debt. Walmart's balance sheet shows that the company holds $81.55 billion in total equity. Walmart has a market cap of $398.14 billion and a book value of $26.57. Its most recent quarter price/book value is 5.26.

Walmart has an annual dividend of $2.16 and a dividend yield of 1.56%. In the most recent quarter, the company paid $0.54 in dividends. Walmart has consistently increased their dividends over the past 46 years. For a retail company like Walmart, a P/E ratio of 22.42 may seem a bit high with its lack of growth potential. However, the price becomes justifiable when one takes into account the long-term security that comes with owning WMT stock. The company has already proven that it is resilient to failure during the coronavirus pandemic as evidenced by its continued growth. But, if that wasn’t enough to convince you, a look back to 2009 will show a continued growth in sales for Walmart throughout The Great Recession. The company provides essential goods at low prices, providing it insulation in a strong and profitable business model, and the company continues to adapt quickly to new opportunities.

Investors may hard-pressed to find another stock with as big of a market cap combined with such a low P/E ratio. Looking at the top 10 market cap companies in the U.S., only Berkshire Hathaway (BRK-A) and Johnson & Johnson (JNJ) compete with Walmart on P/E ratio. Overall, investors shouldn't expect that Walmart will produce huge gains on its stock price in the short-term, but owning WMT stock does offer security for investors looking to keep up with inflation. Finally, the 1.56% dividend yield Walmart offers is significantly better than any savings accounts account rates available right now.