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Is Wal-Mart Still a Blue Chip?

NEW YORK ( TheStreet) -- All great companies are something like pigs. They grow and grow until their very size makes adaptation impossible. Wal-Mart (WMT) is now finding that out the hard way. So far this year, the stock has gained 9.4%. Sounds good, until you realize the S&P 500 index is up 18.7%. The smaller PriceSmart (PSMT) is up 23.9%. You can add Wal-Mart's dividend in there to get a total return of roughly 12%, but that's still not great.

There are three ways to make life better for shareholders -- raise sales growth, raise earnings or give more of earnings back to shareholders.

The top-line problem may be intractable. As numbers get bigger, they get harder to move. In its last fiscal year, Wal-Mart had $469 billion in sales. So far in its current fiscal year, it's had $231 billion. It should beat last year's figure with a good Christmas, but just barely.

Wal-Mart has also tapped out its original rural and exurban niche. Our Laurie Kulikowski writes the company is planning to open 210 new "neighborhood market" stores in the next 18 months, one-sixth the size of its regular places, and try an even-smaller concept called Wal-Mart Express, half-again as small.

But with about 4,000 of its regular-sized stores in the U.S., and another 600 large Sam's Club warehouses, it's hard to see how much of a sales lift will come from 210 smaller markets. And costs are higher in those urban locations Wal-Mart is targeting -- that has to hurt the bottom line.

Retail stocks are measured based on a percentage of sales to equity. Wal-Mart's figure is 52%. That's almost the same as that of Costco (COST), and twice as high as Kroger (KR). For a conventional retailer, it's about as high as it gets.

What about (AMZN), which sells at more than two times its sales?

Amazon's figure is out of line because it is measured against other technology companies, but Wal-Mart is working hard to increase its online business, now about $10 billion/year, with grocery delivery and its Vudu video site leading the way.

Still, even if Wal-Mart outsold Amazon.Com online -- which isn't going to happen -- that would still represent just 25% of its total business.

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