Why Walmart and Costco Are Not Bargains Yet

Last week, Walmart (WMT), Target (TGT), and Ross Stores (ROSS) reported weak results. The retailers
all expect poor performance going forward. They all have excess inventory, higher expenses, and supply
chain difficulties. Costco (COST), which previously traded at a 40 times P/E at its peak, is no longer
attractive.

None of the stocks are bargains yet. Investors may speculate on buying the dip. The stocks could bounce
back quickly if sentiment turns positive. This rebound is potentially short-lived.

Inflationary pressures are destroying the buying power of price-sensitive consumers. The retailers do not
have much room to adjust the product mix. They are taking greater risks in holding goods that consumers
do not want. To keep the inventory moving, they must mark down the price and suffer lower profit
margins.

The supply chain disruption due to Covid is still hurting the industry. The Russian war is disrupting
demand in Europe. And China’s lockdown of Shanghai for over a month is a disruption. Goods main in
China or dependent on shipping through the city could not get through. The bottleneck could take months
longer to clear up.

Costco, Walmart, and Target are not worth the risk yet. Wait for the companies to report better quarterly
results before investing in them.