LISSA’S: Worst Stock for 2008: Wal-Mart

The worst stock in 2008? Here's my guess: Wal-Mart.

Its shares were trading recently around $45 apiece, not far from where they were way back in 1999 -- nearly a decade ago! Long-term shareholders may grumble less. Those who've held on for the past 20 years have enjoyed an enormous 15-fold increase in their investment.

Why am I grousing about this company? Here are a few concerns:

The company's annual revenues top $350 billion -- roughly a third of a trillion dollars! That's not far from the gross domestic product of Saudi Arabia. Why should size matter so much? Well, if a small retailer with $100 million in annual revenues wants to increase them by 10%, it has to generate an additional $10 million in sales. But for Wal-Mart to do the same, it would have to generate more than an additional $35 billion in sales -- which is more than companies such as Walt Disney and Coca-Cola make in a year.

Then there's how the company compares with competitors Target and Costco:

..> ..>

	Wal-Mart	Target	Costco
Quarterly revenue growth (year over year)	9.3%	11.4%	7.6%
Price-to-earnings (P/E) ratio (TTM)	15.6	14.64	27.07
Annual revenues per employee	$195,000	$180,000	$943,000
Gross profit margin (TTM)	24.2%	32.7%	12.4%

Data from Yahoo! Finance and Capital IQ, a division of Standard & Poor's.

Wal-Mart's revenues are growing slower than Target's, yet it's selling at a higher P/E ratio. Its gross profit margin trumps Costco, but is dwarfed by Target. Costco's revenues per employee tower over the rest of the field. So overall, Wal-Mart's numbers aren't the most compelling.

Wal-Mart has a relatively low-income customer base. When it tried to appease a wealthier clientele, it found it couldn't compete.

And then there's inflation -- in China. Some experts predict that it will cause the price of made-in-China products to rise in the coming year or two and put pressure on Wal-Mart to accept lower margins or pass on the higher costs by raising retail prices.

Wal-Mart is controversial, too. By itself, that isn't necessarily a bad thing -- but when many people protest a company, there might be reasons to think twice before investing in it. Wal-Mart has been criticized for not being generous enough with its employees, for example -- and there are 1.9 million of them, including 1.3 million in the U.S.

source: The Motley Fool