By Teresa Rivas

Albert Einstein spent the final decades of his life on an ultimately failed quest to find a unified field theory. But just as one of the world's greatest minds was unable to come up with one single, elegant universal theory, it's equally fruitless to try to name an ideal multiple for retail stocks.

Like beauty, fair valuation can be in the eye of the beholder. When it comes to retail stocks, there's a case to be made that any multiple from 15 to 40 times makes sense.

That's because the market judges companies for both their track records and expectations of top- and bottom-line growth. The narratives around retailers are often changing, writes Bernstein analyst Zhihan Ma in a note Thursday. That goes a long way to explain why she rates Costco Wholesale at Outperform, despite the fact that it's trading at 41 times her 2026 estimated earnings per share. In contrast, she has an Underperform rating on Target, which changes hands at just 15.4 times estimated earnings.

To oversimplify "if you can get same store sales (SSS) and EPS growth, without sacrificing return on invested capital, you're in business," she writes. "It is no surprise therefore to find that the most expensive stocks in our coverage have the best track record of delivering on those fundamentals."

She calls Costco is the "ultimate compounder," still able to be considered undervalued given sustainable EPS growth around 12% to 13% over time, with return on equity holding steady at more than 30% over the long term.

Home Depot could also be called a compounder in this regard, and Lowe's is getting there; she has an Outperform and Market Perform rating on those, respectively.

On the other hand, there are stocks that seem to trade irrespective of their history, including Walmart, Target, Dollar General, Dollar Tree, and Five Below. Each is a unique case.

While Ma is bullish on Walmart she doesn't think it deserves a Costco-level valuation: Eventually opportunities to expand margins, led by e-commerce will slow, and EPS growth will normalize from mid-teen levels to mid- to high-single digits, weighing on multiple expansion. That said, that's still a story worth buying into, and at that point will justify a multiple around the 30 times mark even at more mature earnings levels.

By contrast, she has an Underperform rating on Target, despite its low multiple -- while there's not much further downside there, earnings could still deteriorate further. A full turnaround would obviously let that valuation expand, but there's no sign of that yet.

Ma is split on the dollar stores, as both are turning themselves around -- efforts that could yield high earnings per share growth in the short term, but the long-term is still a question mark. She has an Outperform rating on Dollar General, given its near-term upside in gross margins, but warns down the road it could feel pinched by Walmart. She has a Market Perform rating on Dollar Tree, given she doesn't think it has much of a moat.

In short, in retail as in everything, what's a bargain depends on what's on offer.

Write to Teresa Rivas at teresa.rivas@barrons.com

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January 15, 2026 14:19 ET (19:19 GMT)

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