Walmart has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 16.9% to $102.30 per share while the index has gained 15.6%.

Is there a buying opportunity in Walmart, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Walmart Not Exciting?

We're swiping left on Walmart for now. Here are three reasons why WMT doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Walmart’s 5% annualized revenue growth over the last six years was sluggish. This was below our standard for the consumer retail sector.

2. Low Gross Margin Reveals Weak Structural Profitability

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Walmart has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 24.8% gross margin over the last two years. Said differently, Walmart had to pay a chunky $75.24 to its suppliers for every $100 in revenue.

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Walmart, its EPS declined by 6.7% annually over the last six years while its revenue grew by 5%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Walmart isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 37.3× forward P/E (or $102.30 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.

Stocks We Like More Than Walmart

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