Checklist #1 : WMT




Do I understand the business?

Walmart operates retail and grocery stores both physically and online. Operating in 28 countries, they have 11,000 stores and a growing online presence.

Does the company have a sustainable competitive advantage?

Walmart has relationships with suppliers that span decades. Their slogan is “Always Low Prices” and they are certainly known to live up to that. Having a physical location within 10 miles of 90% of the US population bodes well for not only their store sales, but also potential for future warehousing capabilities if online eventually takes precedent.

Is the company run by exceptional Management?

Doug McMillon has held an executive position at the company since 2006. He started as an hourly associate, and unlike the negative press Walmart had garnered some time ago, McMillon seems to have an appreciation for every level of employee at the company, and that has kept the firm out of the limelight.

Marc Lore, of fame, was pulled into the behemoth after his company sold to Walmart in 2016. He is capably leading the eCommerce platform into battle with stalwarts such as Amazon and Costco.

When it comes to industry comparisons, we have Jeff Bezos and company. For this reason, I am marking Walmart as “In-Line” and not above average.

Is there positive insider ownership?


Alice Walton has been constantly selling since 2015. The same goes for Jim Walton and Rob Walton. As you can see, most of the insider selling was from Walton Family, which may be in an effort to diversify. With such a successful business like this, it is hard to judge accurately if there is reason for these sales because the family has become so wealthy.

When it comes to McMillon , 68% of his 2017 compensation comprises of long-term stock awards. Lore’s is closer to 100%. This should align their actions with Walmart’s future. I would call this in-line.

Does the Company have significant Market Share?

wmt mktshr.png

A simple yes will do here.



Is the Graham Ratio acceptable?

mnt multiple.png

The Graham multiple for Walmart is right in line with the market. Target shows a much cheaper valuation and Costco is much more rich. Amazon is an outlier because it runs other businesses, such as AWS, in which growth is priced into the stock.

Is their EV / EBITDA acceptable?

wmt ev.png

Again, WMT comes in below market and sandwiched between Target and Costco. Another “In-Line” rating.

Is the Return on Invested Capital acceptable?


When it comes to ROIC, Walmart is not so shiny. Standing at just over 10, it lags TGT a hair and COST by a multiple of about 4. Where it does look good is in comparison to AMZN’s paltry 6.6.

What is the trend in their 5-year earning growth?


This one is self explanatory. Walmart has not had a good run in the earnings department as of late. I would assume that some of this has to do with Amazon taking market share.


Is their price to Free Cash Flow acceptable?


On a P/FCF bais, TGT again comes in the lead. Walmart shows to be cheaper than Costco, and, as expected, much cheaper than AMZN.


Balance Sheet

Is their Debt / Equity Acceptable?


A clear winner in the case conservative financing. While those less cognizant of safety reap the rewards of easy money and exception consumer confidence, a strong balance sheet can pad those more aware of the risks of gearing when the economy turns.

Is their interest coverage ratio acceptable?


Costco comes out way ahead in this group. They cover their interest payments 40 times over. While Target may be benefiting from being levered more than twice that of Walmart, it shows in it’s relative weakness in covering  payments. “In-Line”

Is their Quick Ratio acceptable?


While a company may be solvent, its liquidity can be of concern. When you divide the assets that could be used to pay any liabilities from the current period by those same liabilities, you get the quick ratio. Walmart seems to be less than satisfactory in this area, but it’s reputation may give them more leeway- either way, this is below average for the cluster.


What is the trend of the Days Sales Outstanding?


Walmart is improving the number of days it takes to get paid on it’s receivables. It is the only one in the group-barring TGT, for which data was not readily available.


What is the trend of the Days Payable Outstanding?


The trend is up for Walmart in terms of the number of days it is allowed to forego payment to suppliers. This points to improved bargaining power. The industry as a whole is moving in the right direction, but tied at the top is Walton’s own.



Is there short-term negative sentiment?

If anything, WalMart has seen a positive quarter in the press. This makes it harder to pull the trigger. Adding to this, Citigroup recently admitted they were off when bashing the ecommerce potential- the upgraded Walmart to a buy.  Overall this is a negative for position-entry purposes.


Are there significant barriers to entry?

When it comes to the physical store locations and their economies of scale, there are massive barriers to entry. Walmart has entrenched itself as a leader in general merchandise retail. Grocery is a newer goal which may continue to have its challenges, but the infrastructure is there to capture market share.

Anyone can sell goods online. eBay has made this effortless and Amazon lets anyone off the street store their goods at their warehouses and ship them on command. This gives them a cut of the transaction, but assures they are in on a large number of them. Walmart has to compete with all of this. What it has going for itself is a large network of physical stores, a competent commander of online retail, and a familiar name.


Are there high switching costs?

There are not high switching costs when it comes to the ecommerce platform. Amazon is easier to use and still has quite an advantage over WMT despite the recent match in 2-day shipping. When it comes to physical location, the company’s bread and butter, it seems as though it would be more difficult to switch in rural areas. Although stores like Dollar Tree and Family Dollar are making a strong push for that demographic, they may find it hard to compete with WMT in the grocery space.

I would call this “In-Line”.

Is there significant brand loyalty?

Walmart is known for low prices. As time has passed, I have come to know them for improving quality as well. They are a company of the past who is trying to stay relevant. With younger generations ditching brands at an increasing clip, this my become less useful going forward. At any rate, they are reputable and easily recognizable, if not a bit out of touch when compared with the dot-com-era names and disruptors.

Above average.


Do non-recurring items recur?







The first stock to run through the checklist receives a 62.5/100. While this is less than exceptional, it must be noted that this is merely a starting point. It is a means to avoid major blind spots and that it does. I must also point out that I am long WMT and purchased in the neighborhood of $78, when the valuation section proved more enticing.

I like the company and look forward for it’s continuous improvement. I passes the initial check in my book. For a more qualitative review of my bullishness, see this article.





This is not advice or a recommendation, merely an opinion for example security analysis purposes.