Wal-Mart Stores, Inc. (NYSE: WMT) reported spectacular results this quarter despite disappointing results from its peer group. The world’s largest retailer posted same-store sales number up 2.6% as shoppers tighten their wallets and target the cheaper options. The trend may seem predictable to the average person, but many analysts were caught off-guard with their estimates. Wal-Mart also decided to hike its dividend from $0.88 to $0.95 per year. The move is likely designed to jump-start its multiple that has been trading below peers despite strong growth. So, is this mega-retailer a buy now?

Wal-Mart’s target demographic continues to grow larger as an increasing number of consumers make the switch from quality to value. This should translate into very real growth for the world’s largest retailer as many analysts are now expecting the stock to reach $70 per share if economic and stock market conditions improve within the next 12 to 18 months. Many were previously concerned that weakness in U.S. consumer spending may hurt growth, but it now appears that the company’s “value” image is actually leading to more shoppers purchasing its products.

Unfortunately, the tough environment for retailers may prevent Wal-Mart’s multiples from expanding too much despite strong growth. Decreased consumer spending hurt many players in the industry, including apparel stores like Gap Inc. (NYSE: GPS), Limited Brands, Inc. (NYSE: LTD) and J.C. Penney Co. (NYSE: JCP). Slowdowns in the industry may lead to a lower industry mutliple that so many investors rely on for valuing companies. However, a look at the true measure of valuation, PE to growth (PEG), suggests that Wal-Mart remains undervalued compared to its peers. But in the end, it will take an industry recovery for its multiple to expand and share price to jump.

In the end, this is all good news for Wal-Mart shareholders. Same-store sales have increased during an economic downturn while its profits were also up dramatically. However, it may take some time before the fruits of these improvements are picked on Wall Street thanks to a slowdown in the rest of the economy. If there is a broad recovery in the next year or two, look for Wal-Mart to hit and surpass $70 per share. Combined, these factors make WMT a stock worth watching!

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