Let's face facts: Walmart (WMT -0.08%) isn't just the leader in the brick-and-mortar retailing arena -- it dominates the space. The company generated $560 billion in worldwide revenue last year, and the $370 billion share of that total that is produced in the United States dwarfs the top lines of its next-nearest rivals.
Costco has done $178 billion worth of business worldwide in the past 12 months; Target's done $93 billion. Walmart even remains more than twice as big as Amazon's online-retailing operation, which sold $216 billion worth of physical goods in 2020.
The company is also on the right strategic track, morphing from being a mere retailer into a full-blown lifestyle company. Subscription-based delivery service, health clinics, premium alcohol brands, and a beta test of service teams to do in-home installations of tech products are just some of the previously unlikely ways Walmart is now widening its net.
Image source: Getty Images.
Being a creative, dominant name in an industry, however, doesn't inherently mean your stock is a buy for all investors at all times. If you're not ready to make a 10-year investment in Walmart, maybe now's not the best time to step in.
Two big factors are driving this argument.
Walmart stock is currently overvalued
One of the factors in question is the stock's valuation.
A price-to-earnings ratio isn't necessarily the be-all and end-all way of measuring a stock's value. Plenty of equities with low P/Es struggle, while other richly valued stocks thrive despite frothy prices.
But a P/E can help investors gauge where an individual stock is valued relative to a valuation that the market has historically supported. In this regard, Walmart's trailing-12-month P/E of 24.4 and its forward-looking one of 24.8 are a little above its long-term norms.
Data source: Thomson Reuters. 2018 valuation surge is linked to the sale of its stake in JD.com, and it is not reflective of ongoing, operational profits.
You could pay more for a stake in the company, and some investors certainly have and been rewarded despite the price they paid. From a risk-management perspective, though, history says to wait just a bit longer.
Prepare for lackluster profits from Walmart
Underscoring this call for patience is the other prospective stumbling block that could trip up Walmart shares in the foreseeable future: this year's big spending plans.
While the company is making what could ultimately be smart investments in itself, the retailer has already warned us that fiscal 2022 (mostly calendar 2021) is going to be a somewhat expensive year. All told, Walmart is budgeting for $14 billion worth of capital expenditures in 2021, up from around $10 billion per year. And that's taking shape at the same time Walmart is planning wage increases for hourly employees and expecting sales and earnings to cool off from 2020's pandemic-induced buying frenzy.
All that spending should start to pay off in 2022 in sales and earnings. Analysts are modeling 3.3% revenue growth for that year, paired with expected per-share earnings growth from $5.40 to $5.87.
But a year is a long time to make investors wait for evidence of progress. And that perception could work against Walmart's stock price in the meantime.
Walmart stock is a test of your true commitment
Maybe it doesn't matter. If you're truly ready to make a 10-year commitment to the company, a turbulent and lackluster first year is irrelevant. You'll already be positioned for its growth whenever it's taking shape.
But if you're the sort of investor who struggles to hold things for years on end -- or you flinch when one of your picks moves more than a little deep into the red -- hold off. There are plenty of other great picks to choose from with better prospects in 2021.
