Walmart (WMT +0.96%) is one of the most valuable companies in the world, with a market cap that's just over $1 trillion. The company also recently posted strong earnings numbers that beat expectations on both the top and bottom lines. But despite this, the stock hasn't been surging -- it could be a sign that investors are worried about its price.
While the business is sound and its financials are robust, investors should always consider a stock's valuation before investing in it. And with Walmart, its valuation looks incredibly high. The big question is whether it has gotten too expensive, or if it can still be a good buy right now.
Image source: Getty Images.
Walmart's growth has been solid, but is it really that impressive?
Walmart is a dominant force in retail because its big-box stores function as one-stop shops for customers. From day-to-day essentials like groceries to discretionary purchases such as toys and electronics, it attracts a wide range of customers. Plus, its growing delivery options make shopping at Walmart even easier without having to leave your home.
But despite its resiliency, its growth rate has typically been in the single digits, averaging around 5% in recent years.
WMT Revenue (Quarterly YoY Growth) data by YCharts
The growth has been dependable and fairly consistent, but whether it has justified a 170% increase in Walmart's share price over the past three years seems questionable. Walmart is growing, but it isn't exactly generating blowout numbers. And that's where there may be a bit of a problem -- the valuation may not be all that justifiable.
NASDAQ: WMT
Key Data Points
Why Walmart's stock could be overdue for a decline
Currently, Walmart's stock trades at 47 times its trailing earnings, which would normally be an unheard-of valuation for a blue chip, safe-haven type of stock. But at a time when investors are piling money into traditionally safe stocks and investments, including gold and silver, it may not be all that surprising that Walmart is doing so well.
However, that doesn't mean it's a good buy at its current levels. The problem with buying the stock today is that you'd have to be expecting some incredibly rosy growth ahead for the business to believe that its price is justifiable, which doesn't seem all that likely. Valuations have gotten out of control for precious metals and safe-haven investments, and Walmart fits right into that mix.
As solid a business as it is, I do think Walmart's stock may have peaked. Although it posted strong quarterly results in February, the stock has been declining in recent weeks. And even though Walmart remains in great shape, its valuation has gotten out of hand -- I'd avoid the stock for the time being. There are simply better value stocks to buy out there.
