We believe this Dollar General Action (NYSE: DG), Ollie’s Bargain Outlet Holdings shares (NASDAQ: OLLI), and Stock BJ’s Wholesale Club Holdings (NYSE: BJ) are currently better valued than Walmart’s actions (NYSE: WMT). Walmart’s current price / operating income ratio of 21x is above the levels of 14x for DG, 13x for OLLI, and 12x for BJ. But does this valuation gap make sense? We don’t think so, especially if we look at the fundamentals. Specifically, we come to our conclusion by examining the historical trends in revenues and operating results of these companies. Our dashboard Better bet than WMT: Pay less to get more from industry peers DG, OLLI, BJ has more details – parts of which are summarized below.
1. Income growth
Walmart Revenue has grown at an average rate of around 4% over the past three years, compared to 13% growth for General revenue in dollars, 19% for Income from the Ollie’s Bargain store, and 8% growth for BJ Wholesale Club Income. Even if we look at the revenue growth over the past twelve months, WMT’s nearly 4% growth is much worse than the 8% growth for DG, 33% for OLLI, and 9% for BJ.
- General Dollar
is the largest small format retailer in the United States by number of stores. Despite its name, it sells goods for prices up to $ 10. In the second quarter, same-store sales fell 5% but increased 14.1% over two years. The company focuses on rural and semi-urban markets with smaller stores. In fact, DG’s business model is well suited to both good and tough economic conditions as the company experienced its 31st consecutive year of comp growth in 2020.
- Ollie’s Bargain Outlet Holdings is a chain of discount stores selling both basic and optional items (toys, housewares, electronics, hardware). The company looks for excess inventory from suppliers to sell at a significantly reduced price in warehouse type stores. It specifically targets branded merchandise when purchasing inventory. In the fiscal second quarter (ended July 31), comparable store sales were down 28.0% from the extraordinary 43.3% a year earlier, but resulted in a positive stack of 15, 3% over two years.
- BJ’s Wholesale Club is a member-only chain of warehouse clubs in the United States. The company is currently a more attractive business than it was before the pandemic. While BJ’s comparable sales were down 3% excluding changes in gasoline prices, they were up 21% on a two-year basis. It should be noted that sales of Walmart’s Sam’s Club products grew 14.5% from the pre-pandemic quarter.
- Walmart is the world’s largest retailer, operating discount stores, supercenters, neighborhood markets and Sam’s Club warehouses. The company’s revenue grew 2% year-over-year, with comparable sales in the United States up 5.2% in the quarter. It should be noted that this 5% growth in second quarter comps decelerated from 6% in the first quarter and 9% in the previous year, but was still higher than the 3% growth that the company had experienced two years ago during the pre-pandemic quarter.
2. Growth in operating income
The three-year average operating income growth for WMT is 16%, well below 23% for Dollar General, 29% for Ollie’s and 46% for BJ’s Wholesale. Better revenue growth for the latter three led to an increase in operating income for these companies. Over the past twelve months, WMT’s 31% drop in operating income compares with gains of 9%, 76% and 28% for DG, OLLI and BJ, respectively.
The net of everything
Although WMT’s revenue base is much larger than that of any of its peers, each of these companies has experienced higher revenue and operating profit growth than WMT over the past twelve months, as well. than the last three years. Despite better earnings and revenue growth, these companies have a comparatively lower market capitalization to operating profit ratio. Walmart’s underperformance in revenue growth and operating profit relative to the mentioned industry peers reinforces our conclusion that the stock is expensive relative to its peers. And we believe that valuation gap will eventually narrow over time to favor the comparatively cheaper group of names – Dollar General, Ollie’s Bargain Outlet, and BJ’s Wholesale Club.
Comparison of WMT stocks with peers shows how it compares to other peers on the metrics that matter.
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