Do You Own Too Much Walmart Stock? 3 Things for Walmart Leaders to Consider

March provides an opportunity for Walmart Leaders to evaluate their Walmart Stock position and make adjustments before the Trading Window closes at month-end.

As additional Walmart shares from recently vested equity grants are deposited into Fidelity accounts, the wealth of Walmart Leaders is further linked to the performance of the Walmart share price. While this is not necessarily a negative, it is a good practice for associates to be intentional about the amount of Walmart stock in their portfolio.

While determining the optimal amount of Walmart Stock to retain varies among associates, there are some simple questions to help make an intentional and informed decision.

1. What's your exposure to the Walmart share price?

2. What's the risk of holding "too much" WMT stock?

3. What is the growth potential Walmart share price?

Let's review these 3 questions.

1.) Your Exposure to WMT

The wealth (and future wealth) of Walmart Leaders is linked to the Walmart share price in several ways. Here are the primary links:

While #4 is difficult to measure, #1 - #3 are quantifiable with information from your investment statements and Total Rewards document.

Takeaway: You can quantify your financial exposure to the Walmart share price, but the only component you directly control is the amount of shares you own outright (#1).

2.) What's the Risk of Holding "Too Much" WMT Stock?

While there is upside to a concentrated stock position, it makes sense to prioritize understanding the downside.

In the case Walmart stock, there are two inherent risks:

1.) Underperformance: Even a modestly lower return compared to the overall market over several years can significantly impact an investment portfolio. Let's compare Walmart's share price to the performance of the S&P 500 Total Return Index (SPY) since 2000.

Source: Yahoo Finance using Adj. Closing Price to account for dividend payouts and stock splits - End Date of 3/1/2024

Walmart underperformed the S&P 500, but not terribly. Of course, if you would look at the 1970s, 1980s and 1990s Walmart blew the S&P 500 out of the water. Good news is that you can own both!

2.) Volatility: Individual stock prices typically exhibit more volatility than the overall stock market for a given expected return. As a measure of downside volatility, let's compare the maximum drawdowns for Walmart and the S&P 500 since 2000.

Maximum drawdown is the lowest share price between all-time high share prices. While Walmart's share price showed more resilience during the Dot-Com Bubble, Great Financial Crisis and Covid-19 market drawdowns, drawdowns of 10% or higher were more frequent for Walmart.

Source: Yahoo Finance using Adj. Closing Price to account for dividend payouts and stock splits - End Date of 3/1/2024

Takeaway: Since 2000 the Walmart share price provided a lower investment return with more frequent drawdowns. That said, if someone owned Walmart stock for the last 20+ years, they've enjoyed a nice return. The same cannot be said for countless other stocks.

3.) Future Growth Prospects for Walmart's Share Price

While predicting future stock prices is extremely challenging, if not impossible, we can assess Walmart's stock valuation using a straightforward framework.

A stock price calculation consists of two components: Earnings Per Share and Valuation Multiple. Let's solve for Walmart's using the Midpoint of FY 25' EPS guidance and the 3/12/24 closing share price.

*Midpoint FY '25 EPS Guidance / Share Price as of 3/12/24 close.

Share price appreciation is dependent on EPS Growth and/or Multiple Expansion. Let's take a look at Walmart's EPS growth over the last 10 years.

From FY '14 through the FY '25 guidance, Walmart's EPS grew at a Compounded Annual Growth Rate (CAGR) of 3.3% - revenue growth has a similar CAGR. It's worth noting that Walmart is expecting ~20% EPS growth in FY '25 over FY '24.

Source: SEC Filings and Management provided FY '25 Guidance - EPS is adjusted for the 3:1 stock split.

Now, let's look at the historical Multiple Valuation for Walmart's stock. The below chart shows Walmart's Valuation Multiple has historically been in the 15 - 20x range until the last few years.

Now that we have an idea of the historic norms, just as a fun exercise let's forecast the Walmart stock price in 5 years.

The below chart shows the potential Walmart share price in 5 years based on various EPS Growth and Valuation Multiple Scenarios. So, somewhere between $39 -$111....not that helpful, I know.

Takeaway: The guidance for FY '25 is strong and if that trend of 20%+ EPS growth continues the stock is in position for outsized returns. On the other hand, if EPS growth and the valuation multiple return to recent historic norms, the stock price may struggle to keep up with the market.

Wrap-Up

So, what is the appropriate amount of Walmart stock to hold for an associate? If you consult Google, it might suggest 10 - 15%. While not the worst generalized personal finance advice, the answer is likely more nuanced.

How can you offer the same advice to someone working for a startup as you would to an employee of the largest retailer in the world? Your risk tolerance, wealth, and outlook for the company are unique to you. If you have questions about how much Walmart stock you should hold in your portfolio, feel free to schedule a free a consultation.​

The key is to be intentional and understand why you own the amount you hold.

Thanks for reading,

Mark Chisenhall, CFA, MBA

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Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

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