Walmart (ticker:WMT) and Target (ticker: TGT) are both titans of retail. While Walmart is the biggest by far, Target is still in the top 10 for US retailers. You may already have a preference on which store is the best to shop at — but which company’s stock is the better investment? Let’s take a look.
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1. Financial Strength
Both companies are huge, with market caps measured in the billions, which generally means they are financially stable. That doesn’t make them equal, though. Assessing a company’s financial strength is a crucial part of understanding how risky or safe their stock is as an investment.
One commonly-used metric is the current ratio, which measures a company’s ability to use liquid assets to meet its short-term obligations. Typically investors will look for a current ratio of at least 1 or higher, but because retailers have so much money tied up in inventory, their current ratios tend to be lower. Walmart has a current ratio of 0.83, while Target comes in at 0.86, putting both companies on roughly equal footing.
Another useful way to measure financial strength is the Piotroski F-Score, which uses nine different metrics to assess a company’s underlying fundamentals. Target has a trailing twelve month (TTM) F-Score of 7, which is good, but Walmart has an F-Score of 8 over the same period.
Edge: Walmart
2. Dividend Yield
For companies that pay a dividend, comparing the dividend yield can help determine which stock is the most attractive. The higher the yield, the more you are earning in dividend payments for every dollar you have invested. Target has a TTM dividend yield of 2.28%, while Walmart yields 1.27%, meaning you would receive a dollar more in dividends from Target for every $100 invested.
Edge: Target
3. Valuation
Probably the single most important factor when analyzing a stock is its valuation. In the end, the price you pay will determine your return, so even the very best companies can make a bad investment if you overpay. By far the most common valuation metric used to evaluate publicly-traded stocks is the price to earnings (P/E) ratio. Walmart has a TTM P/E ratio of 30.74, meaning its stock price is 30 times its earnings. Target has a P/E ratio of 14.13 over the same period, indicating that the stock market is pricing Walmart stock much higher than Target stock.
Edge: Target
The Winner: Target
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While it’s clear that Walmart is a very high quality stock, the overall pick here is Target. With a valuation less than half as rich as Walmart, and a more attractive dividend yield, investors should be willing to bear a little more risk for Target. Things can always change, so remember to review your stock holdings on a regular basis.
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