Wal-Mart Or Wal-Mart De Mexico: Which Should You Bet On?

The retail industry is geared up for good times, thanks to improving consumer spending and lower gas prices. Reduced unemployment rates and rising home values also add to the optimism in the U.S. economy. The retail sector is bubbling with optimism as the health of the retail industry is an important economic indicator as it is linked directly to consumers and their propensity to spend.

In the light of this background, let's take a look at two major retailers – Wal-Mart Stores Inc. (NYSE:WMT) and its Mexican subsidiary Wal-Mart de Mexico SAB De CV (OTC:WMMVY) .

Wal-Mart’s Start to FY17

After the stellar performance in 2016, this Bentonville, AR-based companyposted impressive first-quarter fiscal 2017 results announced in May 2016 with both earnings and revenues beating the Zacks Consensus Estimate, buoyed by improved comparable store sales. Revenues increased 0.9% year over year and grew 4% on a constant currency basis. The sales decline in the International business was more than offset by growth in sales at Wal-Mart U.S. and Sam’s Club divisions.

How it Went for Wal-Mart de Mexico?

On the other hand, Wal-Mart de Mexico reported a 13.2% gain on a year-over-year basis in net sales, backed by modest comps growth in first-quarter 2016 released in April 2016.However, sales missed the Zacks Consensus Estimate during the quarter. Although cost of sales increased 12.3%,gross margin inflated 60 basis points (bps) to 22.2%, owing to higher revenues. EBITDA increased 24.6% year over year, buoyed by a 16.3% year-over-year rise in.

Is It a Tie?

In terms of share price, Wal-Mart races far ahead with a 16.05% appreciation in 2016 against Wal-Mart Mexico’s depreciation of almost 10%.

However, with regard to long-term growth, Wal-Mart de Mexico seems to have the lead. Its estimated long-term growth rate is 10.2%, which is near the industry growth rate of 13.2%. It is better than Wal-Mart’s long-term growth rate of 4.3%, which is way below the industry average of 9.10%.

Although both Wal-Mart and Wal-Mart de Mexico carry a Zacks Rank #2 (Buy), as per our style score system, Wal-Mart has better growth prospects than Wal-Mart de Mexico. Our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) offer the best investment opportunities in the growth investing space.

Wal-Mart has Growth Style Score of ‘A’ while Wal-Mart de Mexico carries a Growth Style Score of ‘C.’

But the both stocks are overvalued as is evident from their unfavorable P/E and P/S ratios compared to the homebuilding industry.

Wal-Mart’s P/E ratio is 16.68 while for the industry it is 16.59. Similarly, P/E ratio for Wal-Mart de Mexico is 24.58 compared to the industry average of 22.86. Wal-Mart’s P/S ratio stands at 0.45 compared to the industry average of 0.34. Wal-Mart de Mexico’s P/S ratio stands at 1.32 compared to the industry average of 0.83.

Without a doubt, both Wal-Mart and Wal-Mart de Mexico have delivered the goods in 2016 and choosing between the two is difficult. Both the companies have their share of strengths and weaknesses.