Walmart's Valuation Makes Zero Mathematical Sense

Paul Franke27.16K FollowersFollow5ShareSavePlay(12min)CommentsSummaryWalmart is rated a strong sell due to extreme overvaluation versus slow expected growth rates and cheaper peer metrics.WMT trades at historically high multiples—particularly its P/E of 40x—eclipsing peers like Target, Costco, and Amazon.Earnings and free cash flow yields lag well below risk-free money market rates, with rather slight company growth projections around 10% annually.The overvaluation setup is quite similar to the important peak in WMT's price during the last technology boom rollover during 2000-02. Just_Super/iStock via Getty Images I know Walmart Inc. (WMT) is a great company with a storied operating history. Don't get me wrong. But, my job as an investor and writer on Seeking Alpha is to find stocks that make analyticalThis article was written byPaul Franke27.16K FollowersFollowNationally ranked stock picker for 30+ years. Victory Formation and Bottom Fishing Club quant-sort pioneer.....Paul Franke is a private investor and speculator with 39 years of trading experience. Mr. Franke was Editor and Publisher of the Maverick Investor® newsletter during the 1990s, widely quoted by CNBC®, Barron’s®, the Washington Post® and Investor’s Business Daily®. Paul was consistently ranked among top investment advisors nationally for stock market and commodity macro views by Timer Digest® during the 1990s. Mr. Franke was ranked #1 in the Motley Fool® CAPS stock picking contest during parts of 2008 and 2009, out of 60,000+ portfolios. Mr. Franke was Director of Research at Quantemonics Investing® from 2010-13, running several model portfolios on the Covestor.com mirror platform (including the least volatile, lowest beta, fully-invested equity portfolio on the site). 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Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does WMT's valuation compare to peers like TGT, COST and AMZN?WMT's overall valuation now exceeds major retailing peers, especially looking at its high P/E multiple on lower growth rates and profit margins, making the stock quite unattractive.What downside risk does WMT face if valuations normalize or a recession hits?If valuations revert toward long-term norms or a recession occurs, WMT's share price could fall to $50–60, reflecting the risk of a 50% drawdown from current levels.Are there any catalysts that could justify WMT's current valuation?Only a sustained acceleration in EPS growth toward 20% yearly or a takeover bid could justify today's price level, but neither scenario is seen as plausible.Recommended For You