Wal-Mart Stores, Inc. (WMT) Is Way Too Cheap!

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Similar to Wal-Mart, Target trades at 14.2 times current year earnings, and is expected to grow earnings at around the same rate.  As far as Target and Wal-Mart goes, either one is a winner.  I think Target has more room for growth, as there are much less Target stores than Wal-Mart stores, however I think Wal-Mart works better as a business model, especially in developing nations, where the lower-priced option will win.

Costco is priced for tremendous growth at 22.4 times current earnings, and is projected to have a 3-year average growth rate of 12%.  Although this is a better growth rate than the other two, the P/E multiple is just too high.  I really don’t see why Costco trades at such a premium.  It has a better balance sheet than the other two, with $4.9 billion in cash and just $1.4 billion in debt, but that is not a significant enough amount to warrant such a high valuation relative to its peers.

Conclusion

Wal-Mart is a great long-term investment that should be worth a lot more than it is.  Over time, I think this will correct itself, especially as the company’s foreign expansion plans begin to unfold.  It is common knowledge that if you want to buy something for the lowest price possible, and don’t want to shop online, you go to Wal-Mart.  This should work exceptionally well in developing economies where every penny truly counts.

The article This Discount Retailer Is Way Too Cheap! originally appeared on Fool.com and is written by Matthew Frankel.

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