Leakage at Wal-Mart

Have you ever slept in an air mattress that had a slow leak? You start off the night all comfortable lying on your puffy bed, but by the morning, you’re basically lying on the floor with a sore back…

Some stocks do exactly this to you. They look good and strong one day, but slowly, day after day, they lose value, little by little, and before you know it, the stock is down 30%. Ouch!

This is exactly what has happened in 2015 to Wal-Mart – the world’s biggest retailer. It has more than $480 billion in revenue per year and 1.4 million employees – a corporate powerhouse. But this year the shine has come off. By October 15th, Wal-Mart’s stock has lost over 30% of its value from the start of the year. Investors are nervous, thinking maybe Wal-Mart isn’t the Wall Street darling it once was.

So why has the air gone out of Wal-Mart? To many investors, it looks like some of the company’s strengths are now more like burdens. It is a big, low cost company, but that “bigness” has made it slow to move it’s business online to compete with the new low-cost powerhouses like Amazon. (Currently only 2.5% of Wal-Mart’s revenue is generated online). And social attitudes have come into conflict with the low labor cost (aka low pay) at Wal-Mart. Wages have gone up, which is good for employees, but not good for Wal-Mart’s stock price. Earnings missed expectations, and the stock got punished.

So what does this mean to investors? Wal-Mart is on the wrong side of some important changes: the push for higher wages and the move to low cost shopping online. So the question is, how will they respond? So far, not well. The company is not growing as quickly as it once did, and the growth of sales online is slowing.

But Wal-Mart has huge resources behind it and it has talented managers. They may be slow in responding, but they are responding. And will continue to do so. So not all is so bleak.

Most importantly, remember that even when the air comes out of your mattress, it never completely empties. The price for Wal-Mart stock is looking to settle at a new value that prices in these threats to it’s business. This “bottom” will come. And when it does, it could be a good time to buy the stock.

For another take on this story, check out Fortune’s story here.

In the meantime join the GoldBean community, create a virtual portfolio, and put Wal-Mart into it. Watch along with other community members to see where the stock goes!

Image: Walmart Corporate from Bentonville, USA (Walmart store exterior) via Wikimedia Commons

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