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Walmart’s Trading at an All-Time High: Time to Sell?

Will Ashworth

Walmart (NYSE: WMT ) CEO Doug McMillon has been in the top job at the world’s largest retailer for five-and-a-half years. Since taking the helm on February 1, 2014, Walmart stock has achieved a cumulative total return of 82%.

WMT Stock: Walmart’s Trading at an All-Time High: Time to Sell?

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As the company’s online business has grown, so too has the Walmart stock price. Shares are up 68% on an annualized basis over the past three years. Moreover, they’re up 31% over the past 12 months, and 27% year-to-date.

It’s safe to say that McMillon’s time as CEO has been a rewarding one for both long-time shareholders and himself: the head exec owns 1.74 million shares of WMT stock. In fiscal 2019, McMillion realized $29.5 million when 301,809 shares vested. At current prices, all of McMillon’s stock is worth $200 million.

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As the big boss, confident in his ability to keep growing Walmart, I’m sure he’ll continue to hold WMT stock. I say this despite the fact it’s trading at an all-time high.

The question is, should you?

Here are the pros and cons of staying the course with Walmart stock.

The Pros for Riding WMT Stock

Walmart continues to take the online fight to Amazon (NASDAQ: AMZN ).

To counter Jeff Bezos’ Prime Day sale, Walmart is going all-in. The retailing giant is executing a four-day sale that began July 14 and continues through the July 17. They’re also providing free two-day shipping for anyone who spends more than $35 online.

Have you ever spent less than $35 in a single online order? I sure haven’t. So you can bet whoever takes advantage of Walmart’s sale is getting free delivery, not to mention seriously low prices.

All of the company’s online initiatives have led to significant growth. In fiscal 2020’s first quarter, Walmart’s U.S. e-commerce sales increased 37% thanks in part to strong online grocery sales. Additionally, WMT achieved solid numbers in both the home and fashion categories.

For all of 2020, Walmart hopes to continue to grow its U.S. online business at a 35% clip. I don’t know if it can do this. However, it’s hard not to recognize that its e-commerce business is much stronger as a result of McMillon’s leadership.

He might not be worth $200 million, but his efforts in e-commerce are starting to bear fruit not just online, but also in the stores. Keep in mind same-store sales grew 3.4% in Q1 2020, its best quarterly growth rate in nine years.

To sell Walmart stock now would be to miss out on the fruits of the company’s labor.

The Argument for Selling Walmart Stock

It’s impossible to deny that Walmart has come a long way when it comes to e-commerce. However, it’s losing a whole lot of money competing against Amazon and the rest of the players in online shopping. Walmart’s not used to losing money on anything. Therefore, this has got to be a gut punch to McMillon and the rest of the management team.

Reports are circulating that Marc Lore, Walmart’s head of e-commerce in the U.S., is feeling the heat. That’s because the e-commerce unit continues to rack up big losses with little to show for all its major acquisitions, investments in infrastructure, etc.

Walmart paid $3.3 billion to acquire Jet.com on September 2016, primarily to acquire Lore’s e-commerce savvy. And while he’s done a lot to make Walmart more competitive, it’s got to start making money. Realistically, the same-store sales growth it has experienced in recent years won’t continue if the country heads into a recession in the next 12 to 24 months.

Since the Jet.com acquisition, Walmart stock is up 69%, 15 percentage points higher than the S&P 500 .

E-Commerce May Be a Drag on Walmart Stock

However, Walmart’s may lose more than $1 billion in fiscal 2020 from its U.S. e-commerce on $21.5 billion in sales. Due to the negative operating margin, Walmart has put a hold on buying digitally native apparel and fashion brands. It’s also selling ModCloth, which it purchased in March 2017 for between $50 million and $75 million. It might even put Bonobos up for sale although everything is merely speculation at this point.

Apparently, some in the Walmart hierarchy would like to see the company double down on its grocery business — which could overtake Amazon — rather than focusing on apparel and fashion.

The bottom line? This won’t be good for overall morale if the company’s best and brightest are feuding with each other.

WMT stock has come a long way. Should the markets correct, which is highly likely, the Walmart stock price will take a hit at such elevated levels.

Some Trimming May Be in Order

If I had to own a discount retailer that competes with Amazon, I prefer Target (NYSE: TGT ) over Walmart stock. But that’s just me.

I don’t think WMT stock is a bad investment. That said, unless you’re planning to hold for the next three to five years or longer, you might want to take some profits off the table because its e-commerce business could get a lot messier.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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