The tables have turned in the big-box retail world! For most of 2017, the narrative in big-box retail was that Wal-Mart Stores Inc (NYSE:WMT) was transforming into a formidable Amazon.com, Inc. (NASDAQ:AMZN) competitor and obliterating Target Corporation (NYSE:TGT) along the way. From January 2017 to mid-November 2017, Walmart stock rose an astounding 45%. Target stock dropped 25% in that same time frame.

Now, that narrative has flipped.

Walmart hasn’t done anything different, but Target is getting its groove back. The big-box retailer just reported really good holiday numbers and hiked near-term and long-term earnings guidance. Plus, rumors are swirling that Amazon may actually be looking to acquire Target (and those rumors aren’t so far-fetched).

Since mid-November 2017, Target stock is up a whopping 40%. Walmart stock has inched just 1% higher in that time-frame, despite the S&P 500 rallying nearly 8%.

Unfortunately for WMT investors, I think this trend of Target over-performance and Walmart under-performance will persist.

Valuation Discrepancy With Target Remains at Decade Highs

For those who follow my work, you will know that I’ve been bullish on Target and bearish on Walmart since late 2017. Why? The valuation discrepancy between the two stocks reached decade highs in late 2017.

Over the past several years, both stocks have usually traded at a mid- to upper-teens price-to-earnings multiple (usually 15 to 17) and a high-single-digit EBITDA multiple (usually 8). Their valuations have also largely mirrored one another (if Target’s valuation went up, so did Walmart’s valuation, and vice versa).

But, in late 2017, Walmart started to trade at 27.5x trailing earnings (well above the 15 to 17 historical range). Target’s earnings multiple plummeted to below 12 (well below the 15 to 17 historical range). Meanwhile, Walmart’s EBITDA multiple surged to 11 (well above the historical average of 8). Target’s fell to 5 (well below the historical average of 8).

Indeed, the 2017 valuation gap between Walmart and Target was a decade high — by miles.

That gap only makes sense if Walmart turns into the next Amazon and Target gets killed in the process. That isn’t happening. Yes, Walmart’s digital retail game is on fire. The company is turning into a formidable Amazon competitor. But Amazon still owns digital retail. And Target is getting killed anytime soon. Just look at the company’s holiday numbers (comparable sales growth of 3.4%) or its guidance (core earnings are stabilizing).

In other words, the massive valuation gap shouldn’t exist.

While the recent rally in Target stock has narrowed this historic valuation gap, it still remains wide. Walmart stock is at 27x trailing earnings. Target stock is at 16x trailing earnings. Walmart stock is at just under 11x trailing EBITDA. Target stock is at 7x trailing EBITDA.

So long as this gap remains wide, I don’t see Walmart stock benefiting from multiple expansion. Indeed, Walmart stock looks susceptible to multiple compression if operations face any sort of hiccup.

A hiccup wouldn’t be too surprising either. The competition between Walmart vs. Target is a decades-long struggle, wherein wins and losses are exchanged with equal frequency. Target kicks Walmart’s butt. Then, Walmart bounces back and kicks Target’s butt. So on and so forth.

With Target bouncing back, it is not terribly unlikely that Walmart’s numbers start to falter this year. If so, Walmart stock could be due for some serious pain considering its historically high valuation.

Bottom Line on Walmart Stock

I think Walmart is doing everything right to position itself for long-term success in the omni-channel retail world. Long-term, there will be multiple retailers, not just Amazon, that share dominance of the omni-channel retail pie.

But Walmart stock is priced for that and more at these levels. The current valuation is unsustainable, and makes the stock look particularly at-risk to any operational miscues.

Consequently, 2018 could be a rough year for Walmart stock. I’m avoiding it until I see a pullback.

As of this writing, Luke Lango was long TGT and AMZN.