Walmart Stock Is Still Just a Dud Compared to Other Retail Stocks

Walmart stock just doesn't cut it anymore when you compare it to TGT, HD and TJX

Pros and Cons to Buying Walmart Stock Ahead of the Holidays

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Some people consider Walmart (NYSE:WMT) stock to be an investment that people should buy and hold “forever.” Sadly, the days of “buy and forget” are long gone for Walmart stock.

While the largest retailer has plenty going for it, including seventeen straight quarters of rising comp sales and a rapidly growing U.S. e-commerce business, which gained 42% in the most recent quarter, there are just as many reasons to be cautious when it comes to WMT stock.

For instance, selling, general and administrative expenses rose more than 12% between 2015 and 2018 ($93.4 billion to $104.7 billion), while revenue gained 3% ($485.6 billion to $500 billion) during that same time. Rising wages and pricey acquisitions such as its $16 billion deal for Flipkart will hurt WMT’s profits for the foreseeable future.

The average 52-week price target for the Walmart stock price is $107, which implies a 13% upside to current levels. I am not sure what the analysts are smoking given their consensus forecasts are calling for 2019 revenue growth of 2.9%. This matches last year’s 2.9% sales gain ($485.6 billion to $500 billion) exactly. Notably, Walmart stock slumped nearly 6% in 2018 after going on a 43% tear a year earlier. They appear to be running on fumes. I realize that the law of large numbers applies to the Walmart stock price but there are plenty of other retail stocks that are a better choice.

Better Bets Than Walmart Stock

WMT stock trades at a forward price-to-earnings multiple of 20 which isn’t particularly compelling given that peers such as Home Depot (NYSE:HD), Target (NYSE:TGT) and TJX (NYSE:TJX) are valued cheaper, offer more potential upside and are growing at a faster rate than the Bentonville, Ark.-based company. They are all worth buying despite their recent challenges.

HD currently trades at roughly a 15% discount to its average 52-week price target of $204. Its forward price-to-earnings ratio is 17.3 and analysts are expecting 2019 revenue growth of 7.3% for the top home improvement chain. As the real estate market cools, the chain stands to benefit since homeowners may be willing to spend more on improving their homes as opposed to buying a new home. HD is also one of the best-run companies in the sector.

To be sure, TGT took plenty of lumps in 2018. CEO Brian Cornell spooked Wall Street during the most recent quarter when he reported disappointing results as increased spending on e-commerce and higher wages eroded profit margins. The company, though, is doing fine as evidenced by comp sales, which were up 5.7% for the most recent quarter. Even with its problems, TGT is a better stock than WMT stock.

Analysts are expecting TGT 2019 sales growth of 4.8%. The chain’s forward P/E is 12.4 and TGT stock is currently trading at a discount of about 20% to its average 52-week price target of $84.

Finally, there’s TJX. The off-price retailer got hammered last year after posting disappointing third-quarter earnings as rising freight and labor costs eroded its profit margins. TJX, which sells top brands such as Tommy Hilfiger at rock bottom prices, continues to buck industry trends and open stores. But, thanks to its mastery of the “treasure hunt” format, TJX probably had a jolly holiday season and should fare well in an increasingly competitive retail sector

TJX carries a forward P/E multiple of 18.25. Its stock trades at a discount of about 15% to its average 52-week price target of $54.40. Wall Street analysts are expecting TJX’s 2019 sales to rise by 8.2%.  

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

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