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?

By Motley Fool Investor Beat Apr 8, 2014 1:23PM
Much of the narrative around Wal-Mart (WMT) in recent years has been the company's push into more international markets. Now, the company has announced that it will be opening 50 new stores across India.

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.Shoppers put bags in a car at a Walmart store in Valley Stream, NY, on March 29, 2011 (© Spencer Platt/Getty Images)

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.

The Motley Fool's 12 top stocks for 2014 are now available! So if you're tired of picking stocks out of a hat and hoping that one skyrockets, check out Stocks 2014: The Investor's Guide to the Year Ahead. It's The Motley Fool's current top report, and includes Chief Investment Officer Andy Cross's top stock for 2014! This under-the-radar company is the secret winner in the war for the last precious drops of oil on the planet. Find out what it is and how you can take advantage of this unseen company's huge profits in this special, free report, just click here now.


2Comments
Apr 8, 2014 5:33PM
avatar
Wal-Mart's net profit margin is almost double that of Costco.  Wal-Mart has 11,000 stores in 27 countries.  Something tells me they will figure out India.
Apr 8, 2014 4:38PM
avatar
Sure it's going to spread them too thin they are going to run out of places to put their money.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

112
112 rated 1
270
270 rated 2
444
444 rated 3
693
693 rated 4
637
637 rated 5
692
692 rated 6
615
615 rated 7
498
498 rated 8
265
265 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.