WAL-MART STORES INC. $75 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.3 billion; Market cap: $247.5 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.walmart.com) is the world’s largest retailer. It has 10,800 stores in the U.S. and 26 other countries, including over 3,150 supercentres, which sell groceries as well as general merchandise. Groceries now account for 55% of Wal-Mart’s U.S. sales. Offering groceries helps encourage repeat visits.

Wal-Mart uses its large size to negotiate better prices with its suppliers. That gives it a big advantage over its competitors. The company has also invested heavily in computer systems that track its customers’ buying patterns. This information helps Wal-Mart quickly adjust its inventories to respond to changing trends.

The company’s sales rose 15.7%, from $405.6 billion in 2009 to $469.2 billion in 2013 (Wal-Mart’s fiscal year ends January 31). Earnings rose 25.8%, from $13.5 billion in 2008 to $17.0 billion in 2013. Earnings per share jumped 46.8%, from $3.42 to $5.02, on fewer shares outstanding.

In the three months ended April 30, 2013, Wal- Mart’s earnings rose 1.1%, to $3.8 billion from $3.7 billion a year earlier. Earnings per share gained 4.6%, to $1.14 from $1.09, on fewer shares outstanding. Sales rose 1.0%, to $114.2 billion from $113.0 billion. If you disregard unfavourable currency exchange rates, Wal-Mart’s sales would have risen 1.8%.

Sales at Wal-Mart’s overseas locations rose 2.9%. However, U.S. sales rose just 0.3% in the quarter, after a payroll tax increase took effect in January and lowered most Americans’ take-home pay. Harsher-thannormal winter weather and a delay in sending out income tax refund cheques also hurt Wal-Mart’s U.S. sales.

An overseas acquisition specialist

A big part of Wal-Mart’s recent growth comes from buying foreign retailers. For instance, it bought 51% of South Africa’s Massmart Holdings for $2.5 billion in June 2011. Massmart operates 290 department stores in 13 African countries. The company also paid $1.2 billion for 147 U.K. grocery stores in 2011.

Expanding overseas can add risk. For example, in fiscal 2013, Wal-Mart spent $157 million on outside advisors to help it investigate allegations that executives at its 69%-owned Mexican subsidiary paid bribes to help speed up construction of new stores.

The company is also looking into reports of possible bribery in China, India and Brazil. However, any fines it may have to pay would be small next to its annual earnings.

Wal-Mart’s recent investments in its e-commerce business, including new warehouses, are also starting to pay off: online sales rose 30% in the latest quarter. In addition, its Vudu service, which lets users stream movies over the Internet, is helping offset falling DVD sales.

Wal-Mart is also expanding its online business in other countries. It recently paid an undisclosed sum to raise its stake in Chinese e-commerce firm Yihaodian from 17.7% to 51%. Yihaodian sells a variety of products to over 24 million users. Online shopping is just getting started in China, and Wal-Mart’s expertise should help this business expand quickly.

Smaller stores have big potential

In addition, the company is fuelling its growth with stores that have 75% less selling space than its supercentres.

These outlets are less profitable as Wal-Mart’s larger formats, but they make it easier for the company to expand in urban areas, where land costs are higher than in its traditional suburban locations. They are also helping Wal-Mart compete with dollar stores. The company plans to double the number of smaller outlets to 500 by 2017.

Wal-Mart’s strong balance sheet will easily support these investments. Its long-term debt of $44.6 billion is a low 18% of its market cap. It also holds cash of $8.9 billion, or $2.69 a share.

The company continues to aggressively buy back its shares, recently increasing its share repurchase authorization by $15 billion. Wal-Mart can now repurchase up to $15.7 billion of its own stock. There is no time limit for these purchases.

Wal-Mart’s long-term outlook remains bright, particularly as it continues to expand overseas. In addition, the company expects to save $6 billion over the next four years, mainly through better inventory management. These savings will let it keep its prices down and attract more customers.

The stock trades at a reasonable 13.9 times the $5.39 a share that the company will probably earn in fiscal 2014. This estimate excludes investments in Wal-Mart’s e-commerce businesses, which will cut this year’s earnings by $0.09 a share.