Say No To Trading
Public Markets Investor, Opportunistic Buying & Cost-Basis Management
Walmart and Costco are hard to justify buying at their re-rated multiples, and both will someday get a major multiple re-rating down, as annuity-stream stock Rollins recently did. About 30-40% of valuations like these reflects earnings reliability, as with Apple. They probably deserve about 25x earnings, but the road there may be long; someday they'll be buyable at teens multiples. Walmart's earnings day was its worst since 2022, and $104 is still not low enough. x.com x.comÂ
Walmart and Costco will be cheap again someday, at a third to half of current multiples, because markets are always a series of rolling bubbles and oversold sectors, though that could take months, years or longer. A post the author replies to notes Walmart trades at almost 50x earnings. Holding still makes tax sense while the business thesis stays intact; overvaluation alone is not a reason to sell. x.comÂ
Costco and Walmart's valuations have diverged from most US food and beverage stocks. Most of the group trades near 20-year valuation lows, while these two have entered a mini-bubble. x.comÂ
Walmart's 43.28x earnings multiple makes the stock impossible to buy for a long time. Its historical median is 31.13x, and even at 30x it would not be attractive. x.comÂ
Walmart may be setting up for a big bounce, with its pullback matching the pattern of its last two bottoms. The stock is down about 25% from its all-time high, as it was before both prior bottoms, which also showed RSI divergence. Its forward P/E has fallen from near 40 earlier this year to a more respectable 31, and it is holding just above the psychological $100 level near a prior breakout area. x.comÂ
Walmart's valuation is too high for a grocery and household retailer. At about 36 times next year's earnings, it exceeds its five-year norm of 25 and the roughly 20 times this business should command; Target trades near 16 times. Stay away from Walmart here. x.comÂ
Costco stock cannot be expected to make major gains soon at 40x earnings with only low double-digit growth. The company keeps executing well, yet the stock has been flat over the last two years. x.comÂ
Costco doesn't follow the stage 3 to stage 4 breakdown that pattern traders expect, because its fundamentals don't allow it and institutions are willing to pay a premium valuation for its stability. That replies to @ohiain, who notes Costco hit fresh all-time highs as institutional money rotates back toward defensive leadership. x.comÂ
Costco's premium multiple looks unsustainable, at 40 times next-twelve-month earnings with EPS growing only about 10%. Stocks with PEG ratios like that are not worth owning, as multiple cuts at former compounders such as FICO and Intuitive Surgical showed. x.com x.comÂ
Walmart does not deserve 40x forward earnings, especially with comparable sales growth at its slowest in over six years. Per @negligible_cap, the stock fell 6% on decelerating comps and could eventually have a Target- or Nike-style moment as investors realize it can't hold that multiple forever. x.com x.comÂ
Costco is a wonderful execution story whose business only gets better through consumer pain. Its Kirkland brand is more valuable than 90% of consumer brands today. The stock has been too expensive this cycle, and not owning it in size was a mistake; it is worth owning, though the right entry level is unclear. Sysco's moves illustrate the deeper transformation underway. x.comÂ
Walmart's valuation looks like a bubble about to pop: investors pay 37x earnings for 6% revenue growth. Amazon is a more direct comparison and is way cheaper with roughly three times faster growth. x.com x.comÂ
