Wal-Mart: Can Marketing Influence Share Price?

Wal-Mart (WMT) has experienced approximately a 34% increase in share appreciation in the past year. At one point it was a very good whipping boy- problems in Germany, South Korea and Japan; sluggish sales in North America. I am positive I had a few skeptical comments of my own.

Fortune Magazine had an interesting Marketing article by Suzanne Kapner in the Aug 18 edition. Writing from a marketing perspective, the premise is that Wal-Mart has had marketing challenges and originally saw itself as a logistics company who could deliver low prices through excellent materials handling. It has attempted a cultural change according to the article, and has succeeded in becoming more of a marketing company.

The article concludes that since the campaign started about one year ago the stock has gone up approximately 34%. “Consumers save money and Wal-Mart lives better” being the final quote. So should it be about the marketing?

Earnings are only up 17% when comparing the comparable quarters. Problems in Japan persist. Incursions into India remain confusing. The North American economy continues to have serious problems. So why is the stock up 34%?

If you get into the emotional aspects of money and financial behavior, perhaps the marketing comments are correct. If you advertise well enough then the investor will buy in and bid up the stock. Wal-Mart has a positive spin to the marketing. “Save Money Live Better”. Automotive companies who advertise price discounts come across as greedy and desperate. No 34% increases over there.

The critical thinking investor worries that this is US based marketing which has not influenced other regions with serious problems. Also, if a share price reflects the future earnings of a company, a domestic marketing campaign serving up 17% growth should not be rewarded with a 34% value increase.

Beware of the marketing? They want you to buy stuff.

Disclosure: None

Comments

[jerico:]

George, The stock is up 34% because it was undervalued to begin with.

In the next few years, Wal-Mart will be the big player in Brazil, China, and India. That creates a couple of BILLION new customers. We are talking incremental business to the $400,000,000,000.00 plus in sales in fy 2009. With any luck, WMT will be doing a Trillion Dollars in sales in 10 years, half of it in various international currencies. Sounds like a low-risk growth company to me.

2008 Aug 27 04:40 PM

[Topcraft:]

Four years ago (and ever prior to that) , WMT was over $60. The 34% increase is based on its low point one year ago, which is below what it normally runs. In the last 7 years there was been little price appreciation but earnings have grown. The PE has gone from 40 about 7 years ago to less than 20 now. I don't see how $59 now is overpriced as this blog would suggest.

2008 Aug 28 11:02 AM

[Roudy:]

Wal-Mart will reinvent where necessary making them on the cutting edge for years to come. I promise. RoudMan

2008 Aug 28 08:57 PM