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How could Walmart () not be a safe investment decision? This is a . Aren’t Dividend Kings supposed to be good investments? Nope! This business of selecting investments based on dividend metrics really has to stop.In this recent post, Walmart (WMT) is identified as being ‘safe’. I beg to differ. Walmart’s valuation does not make it a safe investment decision.The underlying fundamentals of the company might be sound as shown by the credit ratings. Investing in a company when shares are significantly overvalued, however, can result in a great company being a horrible investment decision.Before proceeding further, I want you to go back in time with me to October 1999 when investors were making REALLY stupid investment decisions. People were investing in ‘trash bins’ at ridiculous valuations! If you were not investing in 1999 – 2000, find somebody who was. They may remember how the valuation of many companies were detached from the underlying fundamentals.Walmart was one such company.An investor who invested in Walmart in October 1999 suffered a NEGATIVE average annual total return of ~0.64% until October 2007! This does not even take into consideration that the value of $1 in 2007 was much less than in 1999. That said, Walmart has doubled in the trailing five years outpacing the S&P 500 Index. Its are also ahead in the trailing ten years.Mark Twain once said “History never repeats itself, but it does often rhyme.”In my opinion, Walmart shares have become grossly overvalued in recent quarters. Could a Walmart investment made in this environment end up being a terrible investment? I don’t know but the odds are not in an investor’s favor.This analysis is limited to Walmart’s risk and valuation to determine if it is truly as safe an investment decision as some investors suspect. I last in 2021.
Risk Assessment
From a credit risk perspective, Walmart is a great investment. The probability of waking up one morning to learn that Walmart is filing for Chapter 11 is remote. Even the rating agencies are in agreement. Look at these great ratings from a long-term issuer default perspective.
All 3 ratings are in the middle tier of the high grade investment grade category. These ratings define Walmart as having a very strong capacity to meet its financial commitments. They differ from the highest-rated obligors only to a small degree.
Valuation
This is the aspect of a WMT that does NOT make it a safe investment.In the first half of FY2025 (Walmart’s fiscal year end is at the end of January), Walmart generated $1.19 of diluted EPS and $1.27 of adjusted diluted EPS. Management’s FY2025 adjusted diluted EPS outlook is $2.35 – $2.43. If you acquire shares at ~$81.30 (October 18, 2024 closing share price), and WMT generates $2.43, the forward adjusted diluted PE is ~33.5! For Walmart? Is this truly safe?(Click on image to enlarge)
Walmart’s forward using the current brokers’ outlook and an ~$81.30 share price is:
Looking at Walmart’s valuation from a Free Cash Flow (FCF) perspective, we know that Walmart generated $5.85B of FCF in the first half of FY2025; it generated $8.985B in the first half of FY2024 (refer to the ). Let’s give Walmart the benefit of the doubt that it will generate more FCF in the second half of FY2025 and that FY2025 FCF will be $14B.The weighted average diluted shares outstanding in Q3 2025 was 8.081B. Let’s assume no material change for all of FY2025.Divide $14B of FCF by 8.081B of outstanding shares and we get $1.73 FCF/share. Divide the current ~$81.30 share price by $1.73 and we get a ~47 Price/FCF value. Whoa! This is safe?
Final Thoughts About Walmart as an Investment
When I completed my , Walmart was my 3rd largest holding. I hold shares in various accounts that I include in the and also hold shares in retirement accounts for which I do not disclose details. Unless I perform a similar review, I have no idea if Walmart is still my 3rd largest holding. Nevertheless, I am reasonably certain it is still a top 10 holding.While Walmart’s credit risk is low, I think investors are delusional if they think investing in Walmart at the current valuation is a safe investment decision. Under no circumstances would I remotely consider adding to my Walmart exposure in this current environment.More By This Author:
