Wal-Mart India push may spread company too thin
The retailer's expansion may seem positive, but can these razor-thin margins support the massive capital expenditures required?
On today's Stock of the Day, Motley Fool analyst Michael Finarelli notes that while there has been quite a lot spent by the company to make this highly touted international push, the returns that have come back from the effort thus far have dramatically lagged returns from the company's domestic business, due to much thinner margins in other markets.
In the video, Mike breaks down the numbers for investors, showing the enormous percentage of operating income generated from overseas operations that the company spent on capital expenditures to build out and operate its overseas footprint over the trailing twelve month period ending this January. Based on this and the thinner margins abroad leading to dramatically less operating income from international operations, Mike says he would much rather see the company continue to focus on a strategy of leveraging domestic operations.
So is Wal-Mart a buy ahead of this expansion into India? Mike says he's staying away for now. He isn't a fan of this strategy and says these capital allocation decisions concern him. And with the ever-increasing threat of competition from Amazon (AMZN) or Costco (COST), he's just not interested in Wal-Mart today.
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