As I look at Inside Value selection Wal-Mart (NYSE:WMT), it's hard for me to think of a blue-chip business where the stock price has so badly lagged the performance of the company over the last few years.

In the last year, Costco (NASDAQ:COST) and Target (NYSE:TGT) have received free passes, but given the performance of the three businesses, Wal-Mart has been the better value for most of the last year. Of course, once identified, it is exactly these types of discrepancies that make value investing work so well.

On some of the more important metrics one can look at when considering Wal-Mart, the company has continued to improve, or at least hold its ground, in the last few years, while its share price has slowly drifted lower. The table below highlights a few of these items.

Metric

TTM*

2005

2004

2003

Inventory Turns

8.0x

7.8x

7.8x

7.8x

Cash Conversion Cycle

12.8

14.0

14.8

15.9

Gross Margins

23.2%

23.1%

22.9%

22.5%

Revenue Growth

11.2%

9.5%

11.3%

11.6%

EBITDA Growth

9.5%

8.9%

13.1%

13.3%
*Reflects trailing 12 months ending July 2006
 Source: Capital IQ, a division of Standard & Poor's

But it hasn't always been clear that Wal-Mart is delivering the goods in free cash flow. This is partly because of the pace at which Wal-Mart has been opening new stores and converting older stores to Supercenters, but it is also partly because the company chooses to own a large portion of its real estate, which simply costs more money up front. However, with the company set to slow down its expansion in the United States, capital expenditures should remain flat year over year, which means more free cash flow to casual observers.

The other driver still playing out for Wal-Mart is its international expansion. Everyone talks up the difficulties in South Korea, Germany, and to a lesser extent with Seiyu in Japan. But I wouldn't write off Seiyu just yet, and Walmex continues to do very well in Mexico. In addition, there is still long-term potential for the company in China and South America.

Will Wal-Mart be the best blue-chip investment of 2007? Based on the strength of its business and its valuation, I think so, but time will tell. Got your own opinion? Let us know in our new Motley Fool CAPS community intelligence database. Simply rate Wal-Mart "outperform" if you agree with my take, or "underperform" if you disagree. To get going and make your voice heard, click here. Based on your thoughts, we'll declare the best blue chip of 2007 early next week.

To read about the rest of our blue-chip candidates, click here.

Costco is a Motley Fool Stock Advisor selection.

At the time of publication Nathan Parmelee owned shares in Costco and had a beneficial interest in shares of Wal-Mart. He had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.