Rising inflation and supply chain disruptions have significantly slowed the growth of the retail sector this year. Amid the slowdown in consumer demand, we believe investors should invest in Walmart (WMT) as it has enough fundamental strength to withstand an economic recession. On the contrary, Honest Company (HNST) should now be avoided, given its bleak growth prospects. Read on to find out more …
Internet retail stocks were hit hard after interest at the Federal Reserve’s 75 basis points earlier this month, which was the largest increase since 1994. Inflation was a major wind contrary to the retail sector in May, as industry leaders reported the impact of higher costs on their operations.
This also created concerns among investors and, as a result, some of the Americans the larger retailers experienced the biggest falls in its stock prices since the fall of the 1987 market. The Federal Reserve’s forecasts for rising unemployment and gas prices have also contributed to the weak performance of the industry’s stock market.
However, the constant spending of consumers on non-discretionary items could help the sector recover quickly. Walmart Inc. (WMT) solid finances, diverse collaborations and impressive growth attributes should help it survive the challenges of the industry. It might be prudent to buy the shares now.
However, not all retail stocks have the necessary foundations to withstand the turbulent market scenario of today. We believe that The Honest Company, Inc. (HNST) is best avoided now, given its weak finances and poor growth prospects.
Stock to buy:
Walmart Inc. (WMT)
WMT is engaged in the operation of retail, wholesale and other units worldwide. The company has three operating segments: Walmart USA; Walmart International; and Sam’s Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry shops and discount stores.
WMT and Memomi, an augmented reality (AR) optical technology company, recently announced that they have agreed for WMT to acquire Memomi. This reinforces WMT’s commitment to omnichannel, frictionless optical care. Since 2019, Memomi has enabled digital metrics for all Walmart and Sam’s Optical customers in addition to 2,800 Walmart Vision Centers and 550 Sam’s Clubs and also drives the optical e-commerce experience at SamsClub.com.
This month, WMT and Roku, Inc. (COURSE) announced a one-of-a-kind partnership to turn TV broadcasting into the next e-commerce shopping destination. WMT will be the exclusive retailer that will allow streamers to purchase featured products made by Walmart directly from Roku, the No. 1 television playback platform in the United States.
In addition, last month, Symbotic LLC, an AI-driven supply chain technology company, WMT announced an expanded business agreement to integrate Symbotic’s software and robotics automation platform into WMT’s 42 regional distribution centers. over the next few years.
In the first quarter ended March 31, 2022, WMT’s total revenue increased 2.4% year-over-year to $ 141.57 billion. His operating income it amounted to $ 5.32 billion, while its net income amounted to $ 2.05 million. The company’s non-GAAP EPA reached $ 0.74. Shares have fallen 4.7% in the last month.
The consensus estimate of $ 1.82 EPS represents a 2.1% year-over-year improvement for the second quarter ending July 2022. Analysts expect WMT revenue to increase 5.5% year-on-year to $ 147.57 billion for the quarter. In addition, the company has an impressive track record of earnings surprises, as it exceeded consensus EPS estimates in three of the next four quarters.
WMT’s POWR ratings reflects this promising prospect. The company has an overall rating of B, which translates to Buy in our proprietary rating system. POWR ratings evaluate stocks by 118 different factors, each with its own weighting.
The stock also has a B grade of growth. Within the classification A Grocery / Big Box industry, ranks 17th out of 38 shares.
To see additional POWR scores for feeling, value, momentum, quality, and stability for WMT, click here.
Stock to avoid:
The Honest Company, Inc. (HNST)
HNST manufactures and sells diapers, wipes, skin and personal care products, and household and wellness products. The company also offers baby clothes and crib products. It sells its products through digital sales channels and retailers, such as its website, third-party e-commerce sites, and brick and mortar retailers.
During the first quarter ended March 31, 2022, HNST revenues decreased 15.2% year-over-year to $ 68.72 million. Its operating loss grew 251.8% from its one-year value to $ 14.55, while its net loss increased 226.2% from a quarter of the previous year to to $ 14.63 million. The company’s earnings per share rose 23.1% year-over-year to $ 0.16.
EPA’s consensus estimate is expected to decline in the second quarter ending June 2022. The company’s shares have fallen 82.2% in the last year and 72.1% in the last nine months.
HNST’s weak foundations are reflected in its POWR ratings. The stock has an overall rating of D, which is equivalent to Sell in our POWR rating system. The stock also has an F rating for Feeling and a D for stability. In classification C Consumer goods industry, ranks 54th out of 61 shares.
In addition to the POWR ratings I just highlighted, you can see the NHST rating for quality, value, growth, and momentum. here.
WMT shares were trading at $ 121.95 per share on Thursday afternoon, up $ 0.03 (+ 0.02%). To date, WMT has decreased by -15.08%, compared to an increase of -19.44% in the S&P 500 benchmark index during the same period.
About the author: Spandan Khandelwal
Spandan’s is a financial journalist and stock analyst focused on the stock market. With its ability to interpret financial data, it aims to help investors assess a company’s fundamentals before investing.
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