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Walmart is a 500 billion dollar company. Even 1% growth is 5 billion in revenue. They are asymptotic to the US economy growth which isn't growing much.

wahern 9y ago
But the point is that the absolute figures don't matter themselves. Investors chase revenue growth. The huge absolute revenues of Wal-Mart do suggest that revenue growth opportunities are structurally limited by the size of the domestic economy. But then again, unless and until every brick & mortar store in the U.S. says "Wal-Mart", they could still grow. That sounds unreasonable, but it's basically how people see Amazon: capable of growing revenues in large part by capturing existing markets, and being able to do that for the foreseeable future. You said you could never understand why Amazon attracts so much investment despite their P/E and despite the poor margins of the retail industry. I realize you probably said that rhetorically, but in any event my point was simply that profit margins don't matter; what attracts investment is revenue growth. I'm sure there are many reasons--some rational (the corollary of revenue growth is growing marginal profit _potential_), some not--but it is what it is. And it's pretty much how investment has always worked. Indicators like P/E only matter because of what they signal about future revenue growth. A poor P/E often suggests poor capacity for growing revenue. It's a heuristic, and if more direct evidence gives you reason to believe otherwise then you discount the predictive value of the P/E metric accordingly. I suppose another way of looking at it is that Wal-Mart is at the phase where they're capturing profits, not growth. Their profit taking years were priced into their stock during the growth period; as they grew revenue their potential for future profits grew and this was immediately reflected in their stock price. If you look at the financial graphs, their stock price has remained steady with their revenue. When overall revenue declined the stock price dropped sharply, because revenue decline implies a decline in future profits and markets will quickly price future prospects into today's stock price. So in the language of "fundamentals" investing, profits are ultimately what matter; but _future_ profits, not today's profits. Future profits is just another way of saying profit potential; and the best indicator of profit potential is today's revenue growth.

wahern 9y ago

But the point is that the absolute figures don't matter themselves. Investors chase revenue growth. The huge absolute revenues of Wal-Mart do suggest that revenue growth opportunities are structurally limited by the size of the domestic economy. But then again, unless and until every brick & mortar store in the U.S. says "Wal-Mart", they could still grow. That sounds unreasonable, but it's basically how people see Amazon: capable of growing revenues in large part by capturing existing markets, and being able to do that for the foreseeable future. You said you could never understand why Amazon attracts so much investment despite their P/E and despite the poor margins of the retail industry. I realize you probably said that rhetorically, but in any event my point was simply that profit margins don't matter; what attracts investment is revenue growth. I'm sure there are many reasons--some rational (the corollary of revenue growth is growing marginal profit _potential_), some not--but it is what it is. And it's pretty much how investment has always worked. Indicators like P/E only matter because of what they signal about future revenue growth. A poor P/E often suggests poor capacity for growing revenue. It's a heuristic, and if more direct evidence gives you reason to believe otherwise then you discount the predictive value of the P/E metric accordingly. I suppose another way of looking at it is that Wal-Mart is at the phase where they're capturing profits, not growth. Their profit taking years were priced into their stock during the growth period; as they grew revenue their potential for future profits grew and this was immediately reflected in their stock price. If you look at the financial graphs, their stock price has remained steady with their revenue. When overall revenue declined the stock price dropped sharply, because revenue decline implies a decline in future profits and markets will quickly price future prospects into today's stock price. So in the language of "fundamentals" investing, profits are ultimately what matter; but _future_ profits, not today's profits. Future profits is just another way of saying profit potential; and the best indicator of profit potential is today's revenue growth.