The Free-Float Case of Wal-Mart (WMT)

By | Published May 28th, 2014

Wal-Mart Stores, Inc. (WMT) is one of the most widely-recognized brands in the world. Operating in dozens of countries, this juggernaut chain of stores has become one of the most popular stocks on Wall Street. With a market cap of nearly $250 billion, it is also one of the largest stocks out there. However, the stock’s inclusion in indexes like the S&P 500 (which is free float adjusted), has left some scratching their heads, as WMT is currently the 36th largest holding of the index despite being among the 10 largest companies in the U.S.

Free-Float Adjusted Indexes

Wal-MartA free-float adjusted index uses the free-float market cap of its underlying components rather than their standard market cap. Free-float adjusted market cap only measures shares that are readily available for public investment and trading. That means that it excludes stock that is owned by company owners, government holdings, and other locked-in shares. The idea behind this methodology is that it more accurately reflects the movements and influence of stocks throughout the investing world.

In the case of WMT, ownership holdings is what has held the stock back in the S&P 500 among other free-float adjusted indexes. Approximately 50% of WMT stock is held by insiders, as the Walton family likes to keep their shares close to the vest. Of the 3.23 billion shares of WMT that are outstanding, only 1.58 billion are free-floating, giving it an adjusted market cap of just under $120 billion when it comes time for inclusion in an index like the S&P 500 [see also 7 Charts to Put Wal-Mart in Perspective (WMT)].

So while a company of Wal-Mart’s size would typically command a weight of approximately 1.4% in the S&P 500, it is granted just 0.74%. Here is a list of other major companies that feature high insider ownership. The percentage free float column represents what percentage of the company is available for public investment:

Company Market Cap (Millions) % Free Float
Berkshire Hathaway (BRK-A) $312,000 78%
Wal-Mart (WMT) $244,000  49%
Oracle Corp (ORCL) $186,000  73%
Franklin Resources (BEN) $34,000  63%
Estee Lauder (EL) $28,000  60%
Campbell Soup (CPB) $14,000  51%
CA Inc. (CA) $13,000  71%

The Bottom Line

Despite being the ninth largest company in the U.S (and the largest by revenue), WMT’s heavy insider ownership dilutes its allocation in a handful of indexes. Be sure to always keep a close eye on a particular index that you wish to invest in, as they all come with different weightings and disciplines that shake up their holdings, sometimes in unexpected ways.

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