Walmart vs Target...is one better than the other? With no end in sight from 2020 pandemic, Covid has cost the U.S. retail industry billions of dollars. According to the latest research by Yelp in the fall of 2020, 72,842 businesses across the U.S. have permanently closed.
Does that mean you should steer clear from investing in the retail industry? I don't think so. We've got two money-making gems that show no sign of pending doom. Let's take a look at the Walmart vs Target stock investing debate.
Walmart vs Target Stock
- At first glance, it appears that Target has the edge on Walmart as far as some of the most popular investing measuring sticks are concerned. So far, Target does, in fact, have a slight year-to-date trading edge. With Target stock prices up 31% in 2020, and Walmart shares rising just 24%, novice investors might be tempted to jump in and buy.
When we look at earnings-based valuations, Target is killing it, grabbing 23 times this fiscal year's projected profit. In addition, they've gained $5 billion in retail market share through the first half of this fiscal year.
Walmart's not looking too shabby either, trading at 27 times this year's earnings. For those income investors in the mix, Target's dividend payout of 1.7% is slightly better than Walmart's 1.5%.
So far, it looks like Target is winning the vs Walmart.
But, we can forget the thriving online shopping world, and it seems that the pandemic has only exacerbated this. Digital sales have nearly tripled during the pandemic.
And both Walmart and Target are reaping the benefits. Growth investors would agree; Target has the one up here.
Walmart's quarterly report saw revenue climbing 6% with adjusted earnings per share rising 23%. But despite booming business at both chains, Target had a stronger quarter.
With revenue rising 25% and earnings per share soaring 85% in Target's last quarter, the numbers are phenomenal.
1. Important Fundamentals to Look at When Deciding Which Stocks to Invest In
Sometimes the hardest part of investing is trying to decide where to put your money. I'm a huge fan of finding the diamonds in the rough.
Also known as value investing, it's simply finding undervalued companies and buying them at a discount. There's nothing better than getting stuff on sale; I know you bargain-basement shoppers can relate.
That said, when "shopping," here are a few key fundamentals you may want to look at. And remember, a number or ratio, in this case, may "look" good, but you need to understand why that number looks good or if it looks "too" good.
If you'd rather get into day trading Walmart vs Target, then there are other things to consider as well.
2. Market Capitalization
Commonly called market cap, it's the total market value of all outstanding shares on the market. To calculate, you take the share price and multiply it by the number of shares outstanding.
The end result is the companies worth or how valuable the public perceives it to be. When it comes to investing, the larger cap companies tend to be less risky than small-cap companies.
Both Walmart and Target are both classified as large-cap companies with 402.01B and 78.77B, respectively. So they both win that in a Walmart vs Target debate.
3. P/E Ratio
A P/E ratio, or a price to earnings ratio is just a way to gauge how expensive a stock is. Or for the more technical people, how a company's profits stack up against its share price. Now we have a few different types like the forward and trailing P/E ratio.
One benefit of a trailing P/E ratio is that it gives you an idea of how the stock trades relative to its earnings. Or, in simpler terms, how much of a premium people are willing to pay for the stock.
Depending on your financial position and risk tolerance, you can decide whether you want to pay that premium or not.
It should come as no surprise that no one likes paying a premium over what something is actually worth. For these reason's I suggest you steer clear of stocks that are trading at 100 times earnings.
The only real reason to pay a significant premium for a stock is if you think the future earnings will grow at a rate that will justify the current price down the road.
4. Profit Margin
Profit margin is one of the commonly used fundamentals to gauge how a company makes money. Before you invest in any company, Walmart vs Target, it's crucial to examine their profit margins. You've got three types: Gross, operating, and net profit margin and each are important.
A company's profit margin provides you with valuable clues about its inner workings. Everything from it's efficiency to how it uses its cash, and other resources will be apparent in these numbers.
Obviously, you need to look at the whole picture, from human capital to revenue to the balance sheet, when investing in a company, but the profit margin is an excellent place to start.
Now all that's out of the way, let's unpack the Walmart or Target debate. If you have some extra cash lying around, which company should you invest in?
Walmart vs Target: Which One Is a Better Buy?
- When it comes to the Walmart vs Target debate in trading, is one better than the other? Walmart is the larger of the two companies. However, Target has been doing extremely well this year. In fact, it has become more expensive than Walmart on the stock exchange. So if you had both in our portfolio, Target would have made more money. But they've both performed extremely well in a pandemic.
1. A Little Bit of Background on Target
Did you know that in 2019, Target landed the 39th spot on the Fortune 500 list? They reported an astonishing $78 in revenue in the fiscal year ending February 1, 2020.
This was a 3.7% increase over the earnings the year prior. All of this goes to show, Target can play ball with the likes of Walmart.
2. The Pandemic Is Good for Retailers Walmart vs Target
When it comes to the retail heavy hitters, Walmart (NYSE: WMT) and Target (NYSE: TGT) are joined at the hip.
Despite the massive shock and chaos, COVID-19 had on the worldwide economy, these two retail behemoths thrived.
Not only did their doors not close like close to 80,000 others in the USA, but they also turned a profit!
3. What Are the Analysts Saying?
Just shy of two weeks ago, Jefferies analyst Stephanie Wissink assigned a buy rating on Walmart and a neutral rating on Target. But Is Walmart really the better buy of the two chains?
Well, let's grab our carts and go shopping.
As the "mall of the future," Wissank's price target of $165, a 14% increase to the upside, is generous. Perhaps it's due to the wisdom behind their strategy and technology, but Walmart's future looks promising in Wissank's opinion.
Now that doesn't mean she has a negative stance on Target. In fact, her $180 price target assumes a 9% rise to the upside from the October 15 close.
Fundamental to her premise are the signs she sees of favorable momentum starting to form at Target. Even though it's not the "mall of the future"
Wissank expects Wamart to command an increasingly larger share of customer spend. Importantly, Wissink sees Walmart creating new pools of market share to play in, areas not previously accessible to its customer base.
As a result, total sales growth is forecast to exceed store level comparable sales by a widening margin.
Jefferies has a base case price target of $165 and bull case scenario P.T. of $180.
When it comes to scaling, Walmart has been able to penetrate the global market successfully. In fact, they have a larger footprint on the international scale.
They've managed to open over 11,000 stores in 27 different countries, including Canada, Chile, Mexico, and Guatemala. Certainly, in the Walmart vs Target debate, Walmart has the advantage.
I hasten to add, Walmart is a lot more than just a namesake change. In fact, Walmart is the parent of Sam's Club, British supermarket operator Asda, and several e-commerce initiatives.
Unfortunately, Target tried to follow in Walmart's footsteps in 2012 by opening its first international stores in Canada. By 2015, the company had over 130 stores across the great, which north.
But its entry north of the border proved to be ill-fated. Whether it was their eagerness to open too many stores at once or lack of market research, the initiative failed miserably.
Clearly, the go big or go home approach doesn't work for everyone. It takes a lot of research, hard work, and growth at home before a retailer can expand their horizons.
Target has since shifted its attention away from its international growth aspirations, but that doesn't mean they can't try again.
Final Thoughts on Walmart vs Target
The debate remains open in the Walmart vs Target debate. Both companies have proven to be all-weather investments in these uncertain times. In my opinion, there is no reason not to own $WMT or $TGT for that matter. Why not buy both?
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