Fear Walmart At $96?
COCHRANE, CANADA MAY 20: The Walmart logo displayed at the Walmart storefront in Cochrane, Alberta, ... More Canada, on May 20, 2025. (Photo by Artur Widak/NurPhoto via Getty Images)
Walmart (NYSE: WMT) proved to be a powerhouse last year, surging 75% and securing a prominent position in the S&P 500, coming in second only to Nvidia (NASDAQ:NVDA) in the Dow. And the momentum isn't slowing down: the stock has added another 7% in 2025, even as the overall market falters. What's igniting this growth? Excellent execution in in-store activities, thriving e-commerce, and swift Walmart+ delivery. At first glance, it looks like a retail utopia.
However, there's a caveat: Walmart is trading at 41 times earnings and 21 times free cash flow. Reverse those figures, and you arrive at a meager 4.7% cash flow yield. In contrast, Amazon—indeed, the leader in cloud services, ads, and all things e-commerce—trades at a lower multiple and is increasing revenue almost twice as rapidly. So while Walmart boasts scale, strategy, and Wall Street's favor, at $96 per share, that translates to a high valuation pursuing a growth narrative that simply isn't keeping up. And what happens when actual growth fails to match the expectations? That's when reality sets in. See Buy or Sell Walmart stock?
Walmart is frequently seen as a recession-resistant stock, but past events tell a more complex story. During the 2008 global financial crisis, its stock price fell nearly 27%. In the early days of the Covid pandemic in 2020, shares decreased by 17%. And in 2022, in the face of spiraling inflation and consumer pressures, Walmart faced another setback with a 26% drop. Not exactly bulletproof—yet today, the stock is valued at a premium.
Management is pinning its hopes on high-growth areas such as e-commerce, advertising (Walmart Connect), memberships, and marketplace growth. The figures are noteworthy: global e-commerce sales increased by 22% (in Q1), ad revenues grew by 31%, and ultra-fast delivery services now reach 95% of the U.S. population. The company also reported a profit in e-commerce in Q1'26—a vital achievement.
Yet the bigger picture is less exciting. Gross margins improved by only 12 basis points, and although customer transactions increased by 1.6% in Q1, surpassing competitors like Target (NYSE: TGT), that growth represents the fourth consecutive quarter of slowing momentum. Walmart's high valuation is based on the belief that its emerging divisions will soon yield substantial profit growth.
Despite the flashy growth in e-commerce, the reality is that Walmart's momentum is far from robust. In FY 2026, the company's management projects 4% revenue growth, 4.5% operating income growth, and under 2% EPS growth. That's barely a heartbeat for a company valued like a hyper-growth tech entity. See our analysis on Walmart's Valuation for more information on what is influencing our price estimate for the stock.
Adding to the challenge is tariff risk. New U.S. tariffs on imports from nations such as Costa Rica, Peru, and Colombia could lead to higher prices as soon as June. Walmart hasn't canceled any orders but is reducing purchase quantities on potentially price-sensitive products. With one-third of its U.S. merchandise coming from imports, and significant exposure to Chinese goods, the risk posed by these tariffs remains a serious concern.
Despite valuation pressures and macroeconomic risks, Walmart's size provides substantial advantages. Its leadership in groceries guarantees steady customer traffic, which also boosts sales of discretionary items. While competitors are struggling with foot traffic, Walmart achieved a 4.5% increase in U.S. same-store sales in Q1 and maintained its guidance for the full year.
The company continues to expand in high-margin, high-growth sectors—e-commerce, digital advertising, and international markets—positioning itself for long-term resilience. Expensive? Certainly. Vulnerable? Far from it.
Investing in a single stock involves inherent risks. Conversely, the Trefis High Quality (HQ) Portfolio, which comprises 30 stocks, has a history of comfortably outperforming the S&P 500 over the last four-year period. Why is that? As a collective, HQ Portfolio stocks offer better returns with lower risk compared to the benchmark index, providing a steadier investment experience, as seen in HQ Portfolio performance metrics.
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