Key Points
-
Walmart’s sprawling physical footprint directly supports its omnichannel capabilities.
-
The company’s consistent financial performance, bolstered by same-store sales gains, proves it can perform in any economic environment.
-
Double-digit profit growth isn’t enough to justify the current valuation.
- 10 stocks we like better than Walmart ›
In February 2024, Walmart (NASDAQ: WMT) announced a 3-for-1 stock split. Each investor received two additional shares for every single one they already owned. This lowered the share price and increased the number of shares outstanding.
From a fundamental perspective, nothing changed. But businesses do this to make their shares more affordable and increase liquidity. These splits usually happen after a period of strong financial performance.
Walmart has reaped the rewards. Since the stock split’s record date, this retail stock has climbed 91% (as of July 2). Here’s where it could be in five years.
Cementing its position atop the retail sector
In the retail sector, Amazon attracts much of the market’s attention. However, investors should not overlook Walmart. The company still dominates the industry, and its performance over the past few years underscores its ongoing success.
Walmart has made a strong push in online shopping. This was catapulted by the multi-billion-dollar acquisition of Jet.com in 2016. The company’s stores also operate as distribution centers that support delivery and pickup orders, leveraging their physical footprint. E-commerce sales surged 26% globally year over year in the latest fiscal quarter (first-quarter 2027 ended April 30).
This business is leaning into other growth areas. For instance, the Walmart+ subscription service, which offers subscribers free delivery and other perks, now has almost 30 million members.
Walmart is also quietly becoming an advertising powerhouse. Worldwide digital ad sales jumped 37% last quarter.
These factors, coupled with stock buybacks, have propelled the company’s diluted earnings per share 107% in the last five years. Sell-side analysts’ consensus forecast calls for this bottom-line figure to rise at a compound annual rate of 12% in the coming three years, which is solid given how massive Walmart already is.
High-quality, high-price
Walmart’s scale is unmatched, providing it with a durable cost advantage. Its high sales volumes give it significant leverage over suppliers, resulting in lower prices that benefit shoppers.
That leads to a compelling value proposition, anchored by a broad merchandise assortment, in any macroeconomic scenario. Walmart’s U.S. same-store sales have grown for 12 straight years, despite there being no shortage of headwinds to navigate.
This is a high-quality business, without question. However, it’s likely to be a market-lagging investment over the next five years. Expectations are high right now.
The valuation has gotten stretched. Shares trade at a price-to-earnings ratio of 39.4. That multiple has expanded 145% in the past decade. While the market is placing a premium on this company’s stock today, there’s a high probability that the valuation ratio will contract going forward.
Should you buy stock in Walmart right now?
Before you buy stock in Walmart, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Walmart wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $418,761!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,195,804!*
Now, it’s worth noting Stock Advisor’s total average return is 918% — a market-crushing outperformance compared to 208% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
