Walmart (NYSE:WMT) had a very good first quarter. WMT stock, on the other hand, remains down for the year.
Sales were up 6% year-over-year, at scale. Earnings were 97 cents/share. E-commerce sales were up 37% and Sam’s Club sales rose 7.2%.
What’s the problem? The problem is that the pandemic is ending. Investors rushed into stocks like Walmart during the lockdowns. At one point last November it was over $151/share.
WMT stock will open today at around $142. That’s a market cap of nearly $400 billion on fiscal 2021 sales of $560 billion. Walmart is America’s biggest merchant and its second-largest e-commerce player.
But with the 55 cent/share dividend now yielding 1.55%, and a price to earnings ratio of 33, investors are seeking more bang for their buck.
A Closer Look at WMT Stock
Think of Walmart as a stock investor’s bank. You put your money there for safety. You withdraw it when times get better.
Times are getting better. The economy grew at a 6.4% annual rate during the last quarter, and indications are that should continue.
This means many investors are taking withdrawals from Walmart. They’re looking at equipment companies like Deere (NYSE:DE), at steel companies like Cleveland-Cliffs (NYSE:CLF), and they’re even going back to Boeing (NYSE:BA).
What was beaten down during the lockdown looks cheap now. Good times are ahead.
This should make WMT stock a bargain, but it isn’t. Not yet. Not so long as the PE is close to that of Microsoft (NASDAQ:MSFT), which is at 34 or higher than Apple (NASDAQ:AAPL), which is at 28.5.
In a normal market, a stock like Walmart shouldn’t trade for much more than 25 times earnings. Buybacks and dividends can increase that, but only to a limited extent. Walmart’s dividend is not yet generous enough to compensate.
This is yet to be reflected in analyst recommendations. Even though Walmart is down for the year and should go lower (unless earnings increase dramatically), 15 of 19 analysts at Tipranks still say buy it. Their average price target is 17% above where it’s now trading.
Walmart still sees Amazon (NASDAQ:AMZN) breathing down its neck, and is doing all it can to fend it off.
It’s buying vans to go into local package delivery, direct from stores and nearby warehouses. It’s renting space to ghost kitchens. It bought a virtual fitting room app called Zeekit, hoping to boost sales of more fashionable clothes. It bought a telehealth provider, MeMD, providing virtual doctor visits nationwide.
But in general, it’s getting back to basics. To Walmart, 2021 looks a lot like 2019, fighting against higher employee wages, and against paid sick leave.
The big worry is about losing share in grocery. Walmarts are huge stores. As the country opens back up smaller shops like Publix and Albertson’s are gaining share. More worrying, so is Target (NYSE:TGT).
The Bottom Line
None of the things Walmart worries about are fatal, but they point to a 2021 that looks a lot like 2019, where its size is its undoing for many shoppers.
Growth is going to be hard to come by. Growth at scale is going to be harder to come by.
With that as background, it makes sense to withdraw from the bank of Walmart. Your money is safe there, but it’s not going to grow there. With inflation rising, WMT stock may not even grow fast enough to keep up with prices.
There are better plays in retail. Target is better. Five Below (NASDAQ:FIVE) is better. Even Bed, Bath & Beyond (NASDAQ:BBBY) is better. You don’t have to rush out. You won’t be hurt here. There are just better opportunities.
On the date of publication, Dana Blankenhorn held LONG positions in AMZN, CLF, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.