A Technical And Fundamental Look At Wal-Mart

Looking at a chart of Wal-Mart Stores, Inc. WMT over the past 20 years, it’s hard to argue that it hasn’t been a spectacular investment. The stock has gained nearly 700 percent since the beginning of 1995, more than double the return of the S&P 500 during that span.

But with the emergence of fierce online competition from the likes of Amazon.com, Inc., Costco Wholesale Corporation and others, is Wal-Mart still a safe place for investors to put their money?

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The Fundamental Picture

At current price levels, Wal-Mart’s price to earnings ratio (PE) of around 17 is slightly below the average for the overall market. A PE of 17 is certainly not atypical for Wal-Mart historically.

Although nobody is putting Wal-Mart out of business any time soon, competition and saturation has taken a bite out of its growth rate.

Wal-Mart is projected to grow earnings at only 5.7 percent annually over the next five years. This low growth rate is why the stock currently has a price to earnings to growth (PEG) ratio of over 3.0. A high PEG could be cause for concern for investors, although Costco’s PEG is over 2.7 as well.

The Technical Picture

From a technical perspective, Wal-Mart stock looks great. After trading in a well-defined channel between about $70 and $79 since early 2013, the stock broke out to the upside in November.

Wal-Mart reached a split-adjusted all-time high of nearly $88 this month before pulling back slightly to current levels. That $88 level could be potential resistance for the stock moving forward, but the previous channel top at $79 could be a strong support level as well.

The world is a much different place than it was in 1995. Long-term investors have a lot to consider when they look ahead to where Wal-Mart could be in 2035.

Disclosure: The author holds a short position in Amazon.