Walmart

There is a hidden business growing inside Walmart that most shoppers never see. Its advertising arm grew 37 percent last quarter and its membership fees grew more than 17 percent. These are high profit add ons riding on top of the stores, and online sales jumped 26 percent in the same period. That is a much faster growing and more profitable mix than just selling cereal and socks.

Walmart sells what people need no matter the economy, and groceries make up about 60 to 65 percent of revenue. That keeps customers coming back in good times and bad. Revenue still grew more than 7 percent year over year to almost 178 billion dollars last quarter, and the company is winning more shoppers from higher income households, not just bargain hunters.

The biggest catch is the price tag on the stock itself. Walmart trades at roughly 45 times its expected yearly profit, which is very expensive for a company growing sales in the single digits. When a stock is priced that high, even a good quarter can disappoint, and any stumble can send the price down sharply.

Walmart keeps only about 3 dollars of profit for every 100 dollars in sales, so there is very little cushion. Higher fuel and shipping costs squeezed profits last quarter, and the company chose to absorb those costs rather than pass them to shoppers. With margins this thin, rising costs hit the bottom line fast.