The Good Ship Walmart is still Heading for the Icebergs
February 18, 2010
Market Watch ran with its Wal-Mart earnings story today with the following headline and commentary:
Is Wal-Mart irrelevant in a recovery?
Commentary: Retailer's core customer is still hurting
We would say they are 50 percent right. We would argue that yes, Wal-Mart, in its current direction, is irrelevant in terms of helping us measure the pace of the current recovery.
But we have to give Market Watch a C minus for commentary, because it is not that its core customer is still hurting, it's that its core customer is disappearing! Please see Ken Gronbach's Blog of February 10.
Wal-Mart currently sells on a price to sales ratio at around 0.5, or in other words you can buy $1.00 worth of the company's sales for 50 cents. In previous times this was a very favorable valuation to buy the stock. However, today that valuation may not be so favorable because we don't see the future revenue driver.
Internationally? The strong Dollar will put a dent in those earnings this year.
Wal-Mart like the Titanic is on course to hit the iceberg while its top management is trying and come up with another cunning plan Mark 10 in the engine room below. Our advice is to get top side, start cutting costs by slashing the number of its stores, reverse its "Made in China"policy for one of "Made in USA," and get back on the retail floor and re-discover some of Sam Walton's magic.
That turnaround story would in our opinion send the shares higher and take them to P/S of about 1.0.
