This Absurdly Cheap Retail Stock Has Shrunk to Just 5% of Walmart's Value

Walmart (NYSE: WMT) is one of the most valuable companies in the world, approaching $800 billion in market value. It looks on track to become the first retailer to hit the $1 trillion mark. In just the past three years, it has risen by more than 130%.

But what about one of its key rivals, Target (NYSE: TGT)? It has been going in the opposite direction lately. And the divergence has become so significant that it is worth just $43 billion, close to 5% of Walmart's overall valuation.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Here's a look at how big the gap between these two stocks used to be, why it has changed drastically, and what it could mean for investors.

Image source: Getty Images.

A big reversal started to take place in 2022

If you look at the returns of these two retail stocks over the past 10 years, you can see that Walmart has clearly been the better buy -- but not always. It wasn't until 2022 with rising interest rates and a slowdown in consumer spending that the tide turned. Up until then, Target was looking like the better buy.

However, as consumers put the brakes on discretionary spending, and with Target being more dependent on discretionary purchases, that led investors to pivot away from Target and load up on Walmart's stock.

WMT Market Cap data by YCharts.

Walmart's business is more heavily tilted toward groceries. They account for close to 60% of the company's revenue, versus closer to 20% for Target. And so it has been better positioned to do well amid a challenging economy. Its results have been better, and investors have also been more optimistic about its growth.

Have their relative valuations gotten out of hand?

Walmart is the safer buy, and Target is certainly riskier, but the big question right now is whether there's too much bullishness around Walmart and too much bearishness on Target. The chart below shows the ratio of Walmart's valuation in relation to Target's over the years.

Fundamental Chart data by YCharts.

Prior to that divergence that has taken place since 2022, Walmart was around three times more valuable than Target. Now, it's 18 times more valuable, with Walmart stock trading at 41 times its trailing earnings while Target trades at a multiple of just 10.

Is Walmart still the better buy?

Target has been performing poorly of late, and it recently missed expectations again in its latest quarterly results. Times are tough for the retailer, and the risk of tariffs only exacerbates concerns about its future.

Walmart is still the safer stock to hang on to, and it's a solid long-term investment. But I can't overlook that significant delta in valuation between these two companies, and while Walmart is better, I don't think it's so much better that it should be worth 18 times as much as Target.

It could take a while for discretionary spending to pick up again, but when that happens, the pendulum may end up swinging back in Target's direction, making it the better buy. While Target is facing challenges in growing its business, that's largely due to macroeconomic conditions, and it's still a top retailer in the country. I'm confident it will get back to growing; it just may take some time.

If you're willing to be patient and can stomach the volatility, I think Target is the more compelling buy at this stage given its much more attractive valuation. But Walmart may still be a more appropriate option for risk-averse investors.

Should you invest $1,000 in Target right now?

Before you buy stock in Target, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Target wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,761!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $826,263!*

Now, it’s worth noting Stock Advisor’s total average return is 978% — a market-crushing outperformance compared to 170% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 19, 2025

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.