Author Topic: WMT - Walmart Inc  (Read 55088 times)

50centdollars

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Re: WMT - Walmart Inc
« Reply #30 on: October 14, 2015, 07:14:41 PM »
http://www.marketwatch.com/story/warren-buffetts-390-million-loss-on-wal-marts-stock-is-nothing-next-to-the-walton-familys-loss-2015-10-14
http://www.bloomberg.com/news/articles/2015-10-14/wal-mart-heirs-see-9-billion-vanish-in-a-day-as-shares-plummet

If you read the idiot news (see above), you would think that walmart is going bankrupt or warren buffett lost $400 million today or even worse, the waltons lost $11 billion.

Market Cap =the number of outstanding shares of a company multiplied by the last known share price it traded at. While this may at first seem like a neat way to value a company, it is fundamentally flawed in a number of ways:

1.  If anyone with a big share in a company (like the WalMart heirs) tried to sell their bulk shares, the stock price would plummet and they would never realize the full value of their stock.

2.  The price the last chump paid (the chump being retail investors like you and me) multiplied times the number of shares means nothing, as retail investors tend to overpay for stocks (act shocked).

3.  The market cap number doesn't accurately value what a company is worth in terms of liquidation value, take-over price, or whatever.  The real value of any company is usually far less than the "market cap" number - perhaps by half.

4.  Even when companies "buy out" another company, all they usually do is offer existing shareholders stock in the new combined company.   Very rarely does someone "take a company private" by purchasing all of the stock at market prices.

5.  You can't "lose money" in a company until you sell the stock.  So the Wal-Mart heirs did not lose $11 Billion today or any day, except the day they sell their stock and take a loss.   Since they inherited the stock, however, they get a stepped-up basis in the stock (the value of the stock the day Sam Walton died) and thus they may not see any loss, but perhaps a huge capital gain.

6.  Phantom or "paper" gains and losses thus mean nothing, until you actually cash out of a company and realize these gains or losses.   And as the market has demonstrated over the last two months, huge losses can be replaced by huge gains - negating any "loss" in short order.


Is Wal-Mart in trouble?  Hardly.  The world's largest retailer isn't about to close its doors.   Are profits down?  Yes, but probably for reasons you would not expect.  As the economy improves, more and more people are shopping in higher-end stores.  The Internet is siphoning off a lot of sales of commodity products.   Costs of Chinese-made goods are higher.  Wages are rising as the economy improves.   There are a number of factors.

Oh, but that is boring, right?   Better to have a click-bait headline that says "Wal-Mart Heirs lose $11 Billion" so the plebes can enjoy a little schadenfreude at their expense.  And let's face it, a lot of people hate Wal-Mart and hate rich people, so they click on these utterly meaningless articles in a knee-jerk fashion.

I saw one analyst say some bullshit like Buffett is probably mad today that this news came out. Mad you say? He is probably jumping for joy. How many times does the guy say he hopes his stocks go down?????? He is probably buying today and will buy more as it goes down further.

Financial journalist are something. Market Cap - or changes in Market Cap - are utterly meaningless.

Most financial news is a joke and should be ignored.
« Last Edit: October 14, 2015, 07:22:01 PM by 50centdollars »
50centdollars


longinvestor

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Re: WMT - Walmart Inc
« Reply #31 on: October 14, 2015, 07:42:55 PM »
http://www.marketwatch.com/story/warren-buffetts-390-million-loss-on-wal-marts-stock-is-nothing-next-to-the-walton-familys-loss-2015-10-14
http://www.bloomberg.com/news/articles/2015-10-14/wal-mart-heirs-see-9-billion-vanish-in-a-day-as-shares-plummet

If you read the idiot news (see above), you would think that walmart is going bankrupt or warren buffett lost $400 million today or even worse, the waltons lost $11 billion.

Market Cap =the number of outstanding shares of a company multiplied by the last known share price it traded at. While this may at first seem like a neat way to value a company, it is fundamentally flawed in a number of ways:

1.  If anyone with a big share in a company (like the WalMart heirs) tried to sell their bulk shares, the stock price would plummet and they would never realize the full value of their stock.

2.  The price the last chump paid (the chump being retail investors like you and me) multiplied times the number of shares means nothing, as retail investors tend to overpay for stocks (act shocked).

3.  The market cap number doesn't accurately value what a company is worth in terms of liquidation value, take-over price, or whatever.  The real value of any company is usually far less than the "market cap" number - perhaps by half.

4.  Even when companies "buy out" another company, all they usually do is offer existing shareholders stock in the new combined company.   Very rarely does someone "take a company private" by purchasing all of the stock at market prices.

5.  You can't "lose money" in a company until you sell the stock.  So the Wal-Mart heirs did not lose $11 Billion today or any day, except the day they sell their stock and take a loss.   Since they inherited the stock, however, they get a stepped-up basis in the stock (the value of the stock the day Sam Walton died) and thus they may not see any loss, but perhaps a huge capital gain.

6.  Phantom or "paper" gains and losses thus mean nothing, until you actually cash out of a company and realize these gains or losses.   And as the market has demonstrated over the last two months, huge losses can be replaced by huge gains - negating any "loss" in short order.


Is Wal-Mart in trouble?  Hardly.  The world's largest retailer isn't about to close its doors.   Are profits down?  Yes, but probably for reasons you would not expect.  As the economy improves, more and more people are shopping in higher-end stores.  The Internet is siphoning off a lot of sales of commodity products.   Costs of Chinese-made goods are higher.  Wages are rising as the economy improves.   There are a number of factors.

Oh, but that is boring, right?   Better to have a click-bait headline that says "Wal-Mart Heirs lose $11 Billion" so the plebes can enjoy a little schadenfreude at their expense.  And let's face it, a lot of people hate Wal-Mart and hate rich people, so they click on these utterly meaningless articles in a knee-jerk fashion.

I saw one analyst say some bullshit like Buffett is probably mad today that this news came out. Mad you say? He is probably jumping for joy. How many times does the guy say he hopes his stocks go down?????? He is probably buying today and will buy more as it goes down further.

Financial journalist are something. Market Cap - or changes in Market Cap - are utterly meaningless.

Most financial news is a joke and should be ignored.

+1 to everything you said.

Picasso

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Re: WMT - Walmart Inc
« Reply #32 on: October 14, 2015, 07:48:05 PM »
Just go read the comments on the top Reddit post related to WMT.  This is why value investing works.  You'd think WMT was going out of business, nevermind the billions of FCF.  Everyone let's go invest in AMZN instead!  Isn't is so much better to have a bird in the bush versus two or three in the hand?

Eye4Valu

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Re: WMT - Walmart Inc
« Reply #33 on: October 14, 2015, 07:52:49 PM »
Not too far off Berkshire's cost basis of $56

FCharlie

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Re: WMT - Walmart Inc
« Reply #34 on: October 14, 2015, 08:08:01 PM »

Will Walmart survive or thrive with these low margins and lower prices?  Are there any examples of a non-niche brick and mortar company successfully competing against Amazon?

 I'd much prefer to own a $192 billion Wal Mart that "unsuccessfully" competes against Amazon while generating $80 Billion of cash from operations over three years, repurchases $20 billion of stock at multi year lows, sits on $120 billion of real estate, with forty years of dividend increases,  than the "successful" $254 billion Amazon which has wonderful sales growth but none of those highly overrated other qualities like huge cash flow, buybacks, real estate, and dividend growth.

bookie71

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Re: WMT - Walmart Inc
« Reply #35 on: October 14, 2015, 08:27:38 PM »
As one of my son's said, "I would rather go to the dentist, than to shop at Walmart"
Always remember, Pigs get fat and hogs get slaughtered.

fareastwarriors

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Re: WMT - Walmart Inc
« Reply #36 on: October 14, 2015, 08:30:42 PM »
As one of my son's said, "I would rather go to the dentist, than to shop at Walmart"

Lots of people hate/dislike WalMart but every time I go, there are always a ton of people shopping there. Yes the demographics might not be what one sees at a Whole Foods or Trader Joes but WalMart gets the job done.

Picasso

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Re: WMT - Walmart Inc
« Reply #37 on: October 14, 2015, 08:33:08 PM »
$500 billion of sales probably means someone shops there. I think investors who are naturally in the 1% of the population just naturally think that everyone shops at Target or Trader Joes. It explains the love for Amazon.

Palantir

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Re: WMT - Walmart Inc
« Reply #38 on: October 14, 2015, 08:48:16 PM »

Will Walmart survive or thrive with these low margins and lower prices?  Are there any examples of a non-niche brick and mortar company successfully competing against Amazon?

 I'd much prefer to own a $192 billion Wal Mart that "unsuccessfully" competes against Amazon while generating $80 Billion of cash from operations over three years, repurchases $20 billion of stock at multi year lows, sits on $120 billion of real estate, with forty years of dividend increases,  than the "successful" $254 billion Amazon which has wonderful sales growth but none of those highly overrated other qualities like huge cash flow, buybacks, real estate, and dividend growth.

Interesting you say this, because people like to talk about finding the "next WMT" or the "next BRK" or the next etc...but when the most likely candidate to be the next WMT is sitting right there in AMZN, it's greeted with mockery. Curious.
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

handycap5

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Re: WMT - Walmart Inc
« Reply #39 on: October 15, 2015, 05:51:49 AM »
i am concerned about the retail space broadly defined (separate from the discussion about what the right prices for the common stocks should be).

1) amazon will somewhat inevitably go to $300B+ gross merchandise sales in the next many years domestically, basically doubling. a) with negative working capital, there is no cash flow barrier to achieving this, b) bezos strategy is clear and no one else involved with the company has the influence to alter the strategy, whether or not it makes or loses money on an accounting basis, and c) the prime offering is and will continue to be very compelling for consumers (once you have a costco card, you never buy your toilet paper anywhere else - prime is similar). one can appreciate that this is a huge consumer giveaway, whether or not amazon proves down the road that it can make decent operating margins (remember that AMZN ROIC is not a disaster even today with the negative WC).

2) WMT has two options among many: a) age gracefully and try to milk the "melting icecube," to mix metaphors, or b) appreciate that amazon has changed the competitive dynamics unfavorably and engage in the competition aggressively, knowing that the eventual profit pool will be less than before. With their announcement, WMT seems to be going down the second path. this will add to the competitive pressure in the retail space broadly defined.

3) i think one needs to be very sensitive to store-level economics. BBBY, as an example, basically has stagnant comps, but costs inherently go up with inflation. Negative store-level operating leverage is a big deal for store-based businesses. No matter how fast its online business is growing off a small base, one primarily owns a store-based retailer. WMT is similar.

to sum it up, the profit pool in retail is going to shrink dramatically, and there will be a lot of wealth destruction - to the consumers benefit. Someday, I expect there will be some very attractive niche opportunities among the survivors, but I am skeptical they exist today. but does anyone disagree with my framework or believe they know interestig retail opportunities for the current environment?