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Walmart (ticker: WMT) and Target (ticker: TGT) are both retail giants. Walmart is the biggest player so far, but Target remains one of the top 10 U.S. retailers. You may already have a preference about which stores are best to shop at, but which company stocks are better investments? Let’s take a look.
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1. Financial strength
Both companies are large companies with market capitalizations in the billions of dollars, which generally means they are financially stable. However, that does not make them equal. Assessing a company’s financial strength is important in understanding how risky or safe its stocks are as an investment.
One commonly used metric is the current ratio. It measures a company’s ability to use liquid assets to meet short-term obligations. Investors typically look for a current ratio of at least 1, but retailers tend to have low current ratios because they have a lot of money in inventory. Walmart’s current ratio is 0.83 and Target’s is 0.86, putting the two companies in roughly equal positions.
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’s trailing 12-month (TTM) F-Score is 7, which is good, while Walmart’s F-Score for the same period is 8.
corner: Walmart
2. Dividend yield
For companies that pay dividends, comparing dividend yields can help determine which stocks are the most attractive. The higher the yield, the more dividends you will receive for each dollar invested. Target’s TTM dividend yield is 2.28%, while Walmart’s dividend yield is 1.27%. This means that for every $100 invested, he will receive $1 more in dividends from the target.
corner: the goal
3. Evaluation
Perhaps the most important factor when analyzing a stock is its valuation. Ultimately, the price you pay determines your return, so even the best company can be a bad investment if you pay too much. The most common valuation metric used to value publicly traded stocks is the price-to-earnings ratio (PER). His TTM P/E ratio for Walmart is 30.74, meaning the stock trades at his 30 times earnings. Target’s P/E ratio for the same period was 14.13, indicating that the stock market values Walmart stock much more highly than Target stock.
corner: the goal
Winner: Target
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While Walmart is clearly a very high quality stock, the overall stock to watch here is Target. With a valuation less than half of Walmart’s and a more attractive dividend yield, investors should take a little more risk on Target. Remember to check your stock holdings regularly, as circumstances can always change.
GOBankingRates Details
This article originally appeared on GOBankingRates.com: Target vs. Walmart Stock: Which is the better investment?
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