Some folks have invested in Walmart (NYSE:WMT) over the years because it’s relatively safe even in economic downturns. Others own WMT stock for the consistent dividend payouts. But now, there’s yet another reason to buy the stock and it’s making the headlines.
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A whole lot of buzz was generated when Walmart announced that the company is rolling out its long-anticipated Walmart+ subscription service. This means that Walmart is directly taking on Amazon (NASDAQ:AMZN) and its Prime service, the seemingly undisputed heavyweight champion of subscription-delivery services.
It’s a bold move, but some people would say that it’s long overdue. And if any retailer is big enough to take on Amazon, it’s Walmart. After delving into the nitty-gritty of Walmart and its new subscription service, you might agree that WMT stock is primed for a big move.
WMT Stock at a Glance
Before jumping directly into the Walmart+ service, it’s important to take a closer look at the stock itself. For one thing, you’ll find that WMT stock offers a forward annual dividend yield of 1.69%. That’s not too bad in a time when some companies have eliminated their dividends altogether.
You’ll also observe that WMT features a trailing 12-month price-to-earnings ratio of 24.46. That’s respectable and suggests that the stock isn’t overpriced on a relative basis.
A reasonable P/E ratio offsets the concern about WMT stock trading fairly closely to its all-time high. An argument could even be made that if it weren’t for the onset of the novel coronavirus, WMT would easily have broken above its high point of $133.38 by now.
Perhaps it just needs a catalyst to break through, and the introduction of the Walmart+ service could be that catalyst.
Competing with a Giant
Few companies have dared to directly compete with Amazon Prime. This service is exceedingly popular, with Recode estimating total membership to be 150 million. For perspective, that’s pretty close to half of the population of the United States.
For a price of $119 per year, Prime features free two-day shipping on a broad variety of products as well as same-day delivery for groceries. Prime also offers access to streaming music, films and television programs, plus discounts at Whole Foods grocery stores.
If this sounds like a recommendation to immediately buy AMZN stock, you might be missing the point here. Not everyone wants to pay the steep $3,100 price tag for a single share of AMZN. That’s not to say that you shouldn’t invest in Amazon, but understand that you won’t get a dividend or a comparatively low P/E ratio like you’ll get with WMT shares.
In other words, we’re looking at two very different investments, and Walmart is neither better nor worse than Amazon. Nevertheless, Walmart+ is naturally going to draw comparisons to Prime. So let’s see what Walmart+ has to offer.
Better Than Prime?
In some respects, Walmart+ might be considered a better deal than Prime. For instance, Walmart+ at $98 per year is cheaper than Prime. Plus, customers can get discounts on fuel at Walmart’s gas stations through the new subscription service.
Importantly, Walmart+ is similar to Prime in that it also offers same-day delivery for groceries. Many people already shop for groceries at Walmart, so the brand-name recognition and trust are already built in.
The unlimited same-day delivery applies not just to groceries with Walmart+, but to general merchandise at Walmart Supercenters as well. Many shoppers went directly to Walmart when they panic-bought essential supplies at the start of the pandemic. The company is a go-to shopping hub for groceries as well as for life’s other necessities.
It wouldn’t be logical to say that Walmart+ poses an existential threat to Amazon Prime. However, the trust that people already place in Walmart could translate into a powerful revenue stream with Walmart+.
The Final Word
There were already valid reasons to own WMT stock before the Walmart+ rollout. This new service adds to the value proposition, making WMT shares a solid buy for safety- and growth-minded investors alike.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.