When evaluating big-box retailers, Walmart (WMT +1.00%) and Target (TGT 1.35%) are usually the first two companies that come to mind. Over the past year, however, their underlying financial results (and stock prices) have diverged sharply. Walmart continues to flex its massive scale, capturing market share and delivering consistent top-line momentum. And its stock? Up more than 34% over the past 12 months. Target, on the other hand, has struggled to regain its footing in a difficult consumer environment, and shares have gained less than 2% over this same period.
Given Walmart's stronger growth and impressive e-commerce momentum, it might seem like the obvious choice for investors choosing between the two retailers. But a closer look reveals a different story.
Ultimately, though, one of the two stocks comes out ahead when compared as potential investments today. So, which is it?
Image source: The Motley Fool.
Walmart is priced for perfection
Highlighting Walmart's impressive resilience, the company's recent financial performance has been stellar.
The retailer posted fourth-quarter fiscal 2026 revenue of $190.7 billion, up 5.6% from the prior-year period. More impressively, Walmart's global e-commerce sales surged 24% year over year in the quarter, demonstrating that its investments in digital fulfillment are paying off.
NASDAQ: WMT
Key Data Points
This momentum hasn't gone unnoticed by the market, driving shares higher. However, this success has pushed Walmart's valuation to a substantial premium. Today, the stock trades at a lofty multiple of about 47 times earnings. While the business is executing flawlessly, this high valuation leaves very little room for error. Investors are essentially paying up for continued strong top and bottom-line growth rates for the foreseeable future. The problem with having so much optimism priced into the stock? Any future missteps or macroeconomic headwinds could lead to a significant rerating in the stock's valuation multiple.
In short, the market has already priced in years of continued outperformance, limiting the stock's long-term upside potential from here.
Target is reinvesting for a rebound
Conversely, Target's recent results have been less inspiring.
The retailer posted fourth-quarter fiscal 2025 net sales of $30.5 billion, which were in line with company expectations but lacked the strong momentum seen at Walmart. Worse yet, management's guidance isn't impressive either. Target's outlook for the full fiscal 2026 year calls for anemic net sales growth of around 2%.
NYSE: TGT
Key Data Points
But investors shouldn't count Target out just yet. The company is actively stepping up its reinvestment to reaccelerate the business. Target CEO Michael Fiddelke noted in a recent press release that management is "moving quickly to take action against our priorities that will drive growth within our business."
These actions are concrete and targeted directly at the consumer experience. Target is investing to enhance its same-day delivery capabilities, its membership-based Target 360 program, and its retail media network. In addition, it's expanding its next-day brown box delivery capabilities to 20 new metro areas this spring, and committing to increasing the amount of newness across its assortment by nearly 50%. These operational pivots, combined with a focus on value and convenience, could spark a meaningful acceleration in growth over the long haul.
The valuation and dividend difference
This brings us to valuation, which is the primary constraint for Walmart but arguably a tailwind for Target. Based on Target's guidance for fiscal 2026 earnings per share of $7.50 to $8.50, the retailer's stock trades at approximately 15 times forward earnings. This is a massive discount to Walmart's multiple.
Further, Target investors benefit from a robust dividend while they wait to see if management can reaccelerate the business.
Target currently boasts an annualized dividend of $4.56 per share, translating to a dividend yield of about 3.8%. This dwarfs Walmart's meager yield of about 0.8%.
Overall, these are both dominant, highly profitable retail businesses. Unfortunately, Walmart's growth stock multiple commands a difficult-to-justify valuation right now. Target, however, offers a compelling mix of a meaty dividend yield and potential upside if its efforts to revitalize its business work.
Which is it?
Target, given its much more conservative valuation and its robust dividend yield, arguably edges out Walmart in a head-to-head comparison. Sure, there's a risk that Target's efforts to accelerate its business don't pan out. But the valuation is simply more attractive than Walmart's.
If I were choosing between the two stocks, I'd stay on the sidelines with Walmart and buy Target today.
