Investors never want to catch the proverbial “falling knife!”
That is when a stock appears to be so cheap that investors step in buy up shares, thinking there is a bargain. This is especially lethal in the retail sector, where the price-to-sales sales ratio can be very enticing. That is a measure of how much a dollar of sales costs in the price of the stock. Many retailers are selling at very alluring price-to-sales ratios, but Wal-Mart (NYSE: WMT) is the only way to buy for the long term.
There have been many previous articles on this site that have been bullish about WalMart, the world’s largest retailer.
WalMart is down for the last week, month, quarter, six months, and year of market action (chart below). For 2014, WalMart is off by 5.35 percent. WalMart was just downgraded by Goldman Sachs (NYSE: GS).
For long term investors, that makes WalMart a “Buy.”
That is especially so for value investors. Those are investors like Warren Buffett who seek to buy stocks that are selling at a discount. Based on its price-to-sales ratio, WalMart is selling a huge discount!
At present, the price-to-sales ratio for WalMart is 0.50.
That means that every dollar of sales for WalMart is going for a 50 percent discount in the stock price. Based on the trajectory of the stock price, it is likely to fall even more. From this, the price-to-sales ratio would be even more alluring.
Wall Street is still bullish on WalMart, although that could change after the Goldman Sachs note.
Over the past five years, earnings-per-share growth for Wal-Mart was 7.60 percent. For the next five years, it is projected to be 8.11 percent. That is a very bullish trend.
Also bullish for future growth is Wal-Mart’s dividend.
Wal-Mart is a Dividend Aristocrat. That means it has increased the amount of its dividend annually for at least the past 25 years. That combined with the expected growth in earnings-per-share should result on a solid total return for investors!