Wal-Mart Stores, Inc. (WMT): Why Should You Buy this Retail Giant?

Costco Wholesale Corporation (NASDAQ:COST) is another player that is looking for growth through aggressive store openings. It opened 5 stores in the second quarter and has plans to open 28 new stores in this fiscal year. Its membership fee income grew 15% year-over-year, though this high growth was accelerated by deferred accounting from last year. Costco is feeling pressure on its gross margin from price investment of Wal-Mart’s “Sam’s Club” stores, but with comps growth of 6% and traffic growth of 5% last quarter it is expected to increase margins in future.

Wal-Mart has an operating margin of 5.65% with a relatively lower forward price-to-earnings ratio of 13.12, making it a better option than its peers. Costco has the highest operating margin of 6%, but it also has the highest forward price-to-earnings ratio of 22.45. Target has the lowest price-to-sales ratio of .46 and the lowest forward price-to-earnings ratio of 12.35, which are both good indicators for it.

Conclusion

Wal-Mart Stores, Inc. (NYSE:WMT) is coming across as a better player with its expansion strategy in the US with smaller format stores. Its international growth plans are expected to drive sales growth for it in the long term along with its initiatives of digital media and e-commerce. I believe the company is a good buy given its relatively low price-to-earnings ratio, high dividend yield (2.50%) and good growth prospects.

Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Why Should You Buy this Retail Giant? originally appeared on Fool.com and is written by Ash Sharma.

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