1 No-Brainer Value Stock to Buy Right Now

The stock market, like pretty much every other asset class, is as frothy as ever.

The S&P 500 looks poised to cross the 4,000 milestone any day now and is trading at a price-to-earnings ratio of 40, nearly as high as it was at its peak during the dot-com era. Both recovery stocks and pandemic winners are looking dearly priced, as even stocks that were hit hard by the pandemic, like Macy’s and Live Nation Entertainment, are trading above pre-pandemic levels. Pandemic winners like Wayfair, meanwhile, are also trading at all-time highs even as they face obvious headwinds as they lap a pandemic-fueled surge last year.

Value stocks, in other words, aren’t easy to find. However, there’s one retail stock that fits the classic definition of a value stock — it’s worth more than it’s trading for. That’s Walmart (NYSE:WMT). Based on conventional valuation metrics, Walmart certainly looks reasonably priced at a price-to-earnings ratio of 28, or a 30% discount to the S&P 500, but the real reason the stock looks like such a great value is that the sum-of-the-parts valuation looks much greater than its current market cap of around $375 billion.

The key components of Walmart’s business are a brick-and-mortar retail empire anchoring the world’s biggest company by revenue; a fast-growing e-commerce business that is the second-largest in the U.S. (behind Amazon); a warehouse club chain, Sam’s Club, that is the second-biggest in the world (behind Costco); an international business being reoriented toward growth markets led by Flipkart and PhonePe in India; and, finally, emerging businesses in areas like healthcare, fintech, and advertising.

Let’s take a look at how to value each of these businesses.

Image source: Walmart.

What is Walmart’s e-commerce business worth?

Walmart doesn’t cleanly separate its brick-and-mortar retail business from its e-commerce business, as the two often work together to provide an omnichannel experience with services like grocery pickup. But the company does give some clues about its e-commerce performance.

In fiscal 2021, which ended in January, Walmart U.S. recorded $43 billion in e-commerce revenue, while the international segment contributed $16 billion, and Sam’s Club added another $5.3 billion for $64.3 billion in e-commerce revenue total, or about 11% of overall revenue. Walmart doesn’t give profitability numbers on e-commerce. It has said the business operates at a loss, but that the loss is narrowing and should continue to do so. Growth in e-commerce has been strong, rising 62% last year, aided by the pandemic. The year before, total e-commerce sales grew by 58%, aided by the Flipkart acquisition.

There’s no perfect peer to compare Walmart’s numbers to, but Wayfair offers one analog. Revenue at the e-commerce home furnishings company jumped 55% last year to $14.1 billion thanks to pandemic-driven tailwinds. The company also turned profitable for the first time, posting net…