The pandemic has affected businesses in many ways, but perhaps the biggest and longest-lasting change will be the acceleration of the shift toward e-commerce that was already underway.
Walmart (ticker: WMT) is a prime example of this shift, balancing a burgeoning online business while also finding ways to keep thousands of physical stores relevant to shoppers. Walmart -- the largest brick-and-mortar retailer in the world -- has begun to build a stronger online shopping experience to reach customers shut inside their homes during the pandemic.
To that end, the company has established a nationwide store system that will help it better compete with Amazon.com ( AMZN) in selling a wide array of goods online -- including groceries -- to customers who will then have those items delivered to them or will pick them up at a nearby store.
The marriage of online shopping and selling groceries, bolstered by Walmart's partnership with Instacart for same-day grocery delivery, has positioned Walmart to outperform amid the pandemic -- and for what life looks like long after.
That said, the health crisis hasn't been all good for Walmart. The company has also had to spend more on pandemic-related costs. That hasn't stopped the company from blowing past recent expectations on both the top and bottom line. After reporting third-quarter earnings in November, many investors might be wondering: "Should I buy Walmart stock?" Here are a few points to consider:
-- Walmart at a glance.
-- Pros to buying.
-- Cons to buying.
-- The bottom line: Should you buy Walmart stock?
Walmart at a Glance
On Nov. 17, Walmart reported earnings and revenue that beat analyst forecasts.
The retailer posted adjusted earnings per share of $1.34 versus Wall Street's expectation of $1.18, which represents 15.5% growth over the same quarter last year.
The company's total quarterly revenue increased by 5.2% to $134.7 billion -- helped by comparable-store sales in the U.S. that rose 6.4% (excluding fuel), and e-commerce sales that soared a whopping 79%. Sam's Club comparable store sales rose 7.9%, with that segment's e-commerce sales growing by 41%.
The company noted in a press release that its sales and operating results were significantly influenced by the ongoing health crisis, as demand for products across categories led to strong performance results.
Pros to Buying the Stock
The pandemic has changed the equation for brick-and-mortar grocery stores.
As the largest of them all, Walmart has had to shift its focus quickly. With its wide array of staple goods combined with its low prices, Walmart is particularly well-positioned for catering to customers who only pop into the store once every few weeks, get what they need, and return to their homes to remain quarantined.
The company has noted that comparable average tickets rose 24% year over year in the third quarter, even though traffic was down 14.2%, as customers "consolidate store shopping trips with significantly larger average baskets."
Pivoting toward an e-commerce business is no simple task, especially for an organization as humongous as Walmart -- yet it's because of its size that Walmart has an advantage. Walmart's chain of 11,400 stores in 26 countries gives the company exactly what Amazon has been trying to build recently: Transportation hubs that make last-mile delivery quick and cost-effective.
In fact, the company's website notes that 90% of Americans live within 10 miles of a Walmart store, making it extremely easy for a customer to swing by a Walmart location to pick up the items they ordered online.
The question now is how Walmart uses its size advantage to reach customers locked up indoors. The answer is Walmart+, the company's new online initiative built to challenge Amazon head-on. The service, which provides members with unlimited free deliveries and fuel discounts, is priced at $98 a year -- which is roughly $20 cheaper than Amazon Prime, though without the bells and whistles like Prime Video.
Although the service was released in September, the third-quarter earnings announcement wasn't explicit about how well Walmart+ performed in its first quarter of operations. Still, investors and analysts alike are hopeful that Walmart can leverage its sprawling brick-and-mortar operations, widespread appeal, and fast-growing e-commerce business to better compete with e-commerce rivals.
Cons to Buying the Stock
A potential headwind for Walmart -- and many other companies, for that matter -- is the economy. If the pandemic and related high unemployment drag on, all retailers could suffer.
Luckily, Walmart's wide range of products, from groceries to electronics, provides it some cushion against pandemic-related problems with demand. For instance, in its latest earnings release the company noted that while it experienced "softer results in back-to-school stationery and apparel categories," those issues were offset by "strong performance led by sales of home, electronics, toys and sporting goods."
While all retailers are dealing with the pandemic and its accompanying problems, that doesn't mean that Walmart is suddenly operating in a vacuum.
Competition is a big issue facing Walmart even beyond Amazon, both in the brick-and-mortar space as well as in online sales for groceries and other items.
Competition from other low-cost outlets like Dollar General Corp. ( DG) might intensify as people who formerly shopped at higher-cost stores look for better deals. Meanwhile, Target Corp. ( TGT) is getting into the e-commerce fray along with Amazon, and Costco Wholesale Corp. ( COST), a competitor for Sam's Club on bulk purchases, has been a big winner during the pandemic.
Walmart retains its advantage against smaller competitors who haven't been able to withstand the economic pressure from a pandemic like it can, but larger competitors are pivoting just like Walmart -- and as of now, nobody knows which retailer will emerge from the pandemic in the strongest position.
Bottom Line: Should You Invest In Walmart Stock?
A big question surrounding Walmart's future is whether its new online service provides enough benefits for customers that they will switch from Amazon Prime to Walmart+, allowing Walmart to take market share directly from Amazon. While it's possible that both services can operate alongside one another, there will be jostling for customer spending in an economy that is forcing consumers to think carefully about every purchase.
Meanwhile, economic headwinds are something every retailer has to face this year, but Walmart's size and massive footprint gives it a distinct advantage over other, smaller businesses. The company's recent investments in building its e-commerce platform, as well as establishing a system of delivery and pickup purchasing, will benefit Walmart and its shareholders for years to come.
Walmart's recent earnings report indicates that the company is well on its way to not only surviving the pandemic but thriving after the virus has been beaten.
Mark Reeth is a contributing writer for U.S. News & World Report, where he writes about anything and everything to do with investing. Prior to U.S. News, Mark covered consumer goods, technology, and telecom stocks for The Motley Fool. When he's not writing about investment strategies Mark is busy running his own small business, which has given him a better appreciation of the personal finance trials and tribulations of entrepreneurs everywhere.
Mark is a graduate of the College of the Holy Cross, where he studied History and Education. You can connect with Mark via LinkedIn, or follow him on Twitter.