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If you followed my advice in June 2011 to buy Wal-Mart (WMT) because of its attractive valuation and solid fundamentals, you can see that diligence truly pays. Driven by Wal-Mart's savvy management and intelligent capital allocation, the stock has risen over 45% since the time of my article, outpacing the S&P 500 (up 30%).

But the stock is still cheap, and I reiterate my recommendation that investors buy WMT.

Profit Growth Continues Unabated

Wal-Mart has grown after-tax profits (NOPAT) by 11% compounded annually since 1998, which means the company has quadrupled its NOPAT over that time period -- an impressive feat. Investors concerned about this company's growth are looking at the wrong numbers. Cash profits, not GAAP earnings, drive market values, and Wal-Mart is a cash flow growing machine.

Unrivaled Efficiency and ROIC

More impressive is the company's ability to sustain an attractive return on invested capital of around 12.4% while also growing that fast. Most business that grow as fast as Wal-Mart see declines in ROIC, at least in the short term, as all the capital allocated for growth requires some time to generate profits. But not Wal-Mart. The consistency of Wal-Mart's ROIC is nearly unparalleled. Of the 2,166 companies for which I have data going back at least 10 years, only 11 have a lower variance in ROIC, and none of those 11 have earned positive economic earnings over that time frame.

Even more impressive is the scale of Wal-Mart's growth in both revenue and NOPAT. This is not some mom-and-pop operation going from small to not-so-small. Wal-Mart is the biggest retailer in the world going from huge to, for lack of a better term, Wal-Mart huge. To maintain profit margins while incurring all the expense of building and opening new stores is a rare feat. And to do so with such scale is an accomplishment investors should note.

Figure 1: Profitable Growth With WMT's Scale Is Rare

Sources: New Constructs, LLC and company filings.

The Stock Is Still Too Cheap

Wal-Mart's stock has done well since we first opened a position in June 2011, but it is still significantly undervalued. Wal-Mart now has an economic book value of ~$100/share, while its stock price sits at ~$76/share. This yields a price-to-economic-book-value ratio of 0.75, which means that the market currently expects Wal-Mart's profits to permanently decline by 25%. Such low expectations mean WMT offers an attractive risk/reward.

As detailed in Danger Zone May 20, 2013: Amazon.com, I do not believe that Amazon (AMZN) poses a major threat to WMT. In fact, I think WMT poses a major threat to AMZN. Considering that WMT already has more scale and margins nearly 4x higher than Amazon's margins, it is fair to say that Wal-Mart has a strong competitive advantage over Amazon as it does over all other firms in the general retail business.

Investors are getting a steal with WMT at $76/share.

Figure 2: WMT Trades at a Big Discount to No-Growth Value

Sources: New Constructs, LLC and company filings.

It is not surprising then, that my two top-rated consumer staples ETFs -- Vanguard Consumer Staples ETF (VDC) and Consumer Staples Select Sector SPDR (XLP) -- allocate over 7% of their holdings to WMT and are rated four-star or "Attractive" funds. VDC and XLP also happen to be two of my three highest-rated sector ETFs overall.

André Rouillard and Sam McBride contributed to this article.

Source: Wal-Mart: Still Offering Great Value