Whitney Tilson Not Buying Wal-Mart Stock, Smells A Value-Trap

• Whitney Tilson believes that Wal-Mart Stores, Inc. WMT stock could be a value trap at current prices.
• Wal-Mart has been mostly ignoring competition from online rival Amazon.com Inc AMZN in recent years.
• Wal-Mart’s P/E ratio is well below the S&P 500 average, but its PEG ratio reveals that growth is the company’s biggest problem.

Hedge fund manager Whitney Tilson is the latest to weigh in on Wal-Mart’s recently-announced plan to turn its operations around by investing heavily in online sales. Wal-Mart’s shares are down big since the company made the announcement, but Tilson believes that buyers should beware of a value trap.

Losing battle
It’s no secret that Wal-Mart has been losing market share to online rival Amazon. This year alone, Wal-Mart’s stock is down 30 percent, while Amazon’s is up 80 percent.

Tilson’s comments
Tilson believes that buyers should be leery of rushing in to buy Wal-Mart on the dip.

“What should Walmart have done over the past two decades to prevent the current state of affairs?” Tilson asked. “More relevantly, what can it do today? I’m not sure there’s anything it can do, which is why I’m not buying its stock, despite it looking awfully cheap. It smells like a value trap.”

The numbers
If the market continues to reward growth over earnings like it has in recent years, Wal-Mart shareholders could be in trouble. Amazon’s stock is one of the top performers in the entire market in 2015, despite a P/E ratio of 868.1. Walmart’s P/E ratio is only 12.2, well below the S&P 500 average.

When growth rates are factored in, however, Wal-Mart’s PEG ratio of 4.2 exposes the company’s true problem- weak growth. Amazon's incredibly lofty PEG ratio of 24.5 is yet another example of the market’s disregard for value in the face of Amazon’s strong growth projections.

Disclosure: the author holds no position in the stocks mentioned.