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Wal-Mart 2009: A Year In Review

Posted: Dec 28, 2009 18:17 PM by Sham Gad

Tickers in this Article: SHLD, TGT, TJX, WMT

Considering that it's the largest retailer on the planet and it's known for its ultra-low prices, one would not have been crazy to suggest investing in Wal-Mart (NYSE: WMT) at the beginning of 2009. And if you would have told someone at the beginning of the year that the S&P 500 index would be up over 20% heading into the final weeks of the year, one may have logically guessed that Wal-Mart would perform somewhat in line with the overall market.

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What Went Wrong?
As we head into year end, Wal-Mart shares are down almost 3% for the year, underperforming the S&P by nearly 25 percent. This compares with a nearly 40% rise in Target (NYSE: TGT) shares and an approximately 80% increase in the share price of retailers Sears Holding (Nasdaq: SHLD) and TJX (NYSE: TJX). And it's not like Wal-Mart is grossly overvalued compared to the rest. In fact, Wal-Mart shares now command a P/E ratio of 16 compared with 16.5, 15 and no current P/E for Target, TJX and Sears, respectively. Clearly, tougher times for consumers should mean good days for Wal-Mart. (For more, see Analyzing Retail Stocks.)

In A Word, Growth
The problem for Wal-Mart in 2009 may have been the loss of confidence in the retailer's ability to continue growing given its current size. It's likely, however, that Wal-Mart will surprise skeptics in 2010. Consider that Wal-Mart shares have essentially delivered a 0 percent return over the past 10 years. During that decade, however, earnings have tripled while revenue has more than doubled. The difference for investors is that back then, they were paying nearly 57 times earnings for Wal-Mart, while today they are paying nearly a fourth of that valuation. And today, the iconic retailer is undergoing a corporate transformation that focuses on remodeling the stores to give them a cleaner, more modern and shopper-friendly look. (For more, see The Value Investor's Handbook.)

Bottom Line
Despite the bad performing year, investors might want to give the stock a new look in 2010.

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By Sham Gad

Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga

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