After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PB ratio, while the Enterprising Investor has concerns with the high level of debt relative to the current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.
When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $3.75 in 2011 to an estimated $4.85 for 2015. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 4.56%. As a result, the company appears to be fairly valued at the present time.
Be sure to check out previous ModernGraham valuations of Walmart for better perspective!
Disclaimer: The author did not hold a position in Wal-Mart Stores Inc. (WMT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.