Predicting Walmart's Inventory Placement in the Next Three Years
If you've been holding onto your Walmart (WMT -0.44%) shares since early 2022, you've likely been feeling pretty pleased with your investment choices. Over that period, Walmart's stock has outperformed the S&P 500, delivering an impressive 99% return. That's far superior to the returns of Walmart's competitors, like Target and Kroger, which have managed just under 30% in the same time frame. Only Costco has come close to Walmart's stellar performance.
But is Walmart set to leave its competitors in the dust yet again, or have its best days already passed? Let's dive a little deeper to find out.
Walmart's Secret Sauce
Walmart's stellar stock performance can be traced back to its strong business trends. These trends have appeared in the form of growing market share, booming e-commerce sales, and rising profitability. Let's take a quick look at each trend to see if Walmart can maintain this positive momentum into 2027.
On market share, Walmart has found a way to expand its business even when consumers are cutting back in response to high inflation. In the most recent quarter, which ended in late October 2024, Walmart's comparable-store sales were up 5%, while Target's were flat and Kroger's were only up 2%. Walmart's value-focused approach has been a major draw for consumers lately.
But it's Walmart's e-commerce success that has really caught investors' attention. Last year, e-commerce sales crossed the $100 billion mark, and they were up 27% during the last quarter. A thriving e-commerce division is also driving foot traffic to stores, as customers often pick up orders in person. In the U.S., customer traffic was up 3% in the last quarter.
Finally, there's the profit margin, which has improved due to those rising digital sales and higher membership fees. Walmart's operating profit margin is starting to creep back toward the 5% high it saw in 2022.
What's on the Horizon
The big question ahead of Walmart's February 20 earnings report is whether these positive factors continued to drive the business during the critical holiday shopping season. It seems likely that they did, considering that management raised its fiscal year outlook in mid-November. Investors will be looking for Walmart to report net sales growth of around 5% and adjusted operating profit gains of up to 9.25%.
If Walmart can deliver on these strong results – industry-leading growth plus expanding profit margins – it's likely to continue its outperformance.
However, Walmart's stock is pricey, trading at 1.1 times sales compared to 0.75 times a few years ago. Other successful retailers like Costco have seen their stock valuations climb as well, but it's possible that the wider industry is due for some lackluster returns following the huge rally in the S&P 500 in both 2023 and 2024.
Still, Walmart is a great choice for many investors' portfolios. It's shown that it can perform well even as consumers tighten their belts. And its e-commerce unit is finally starting to contribute to the annual earnings, which is expected to happen in 2025 and beyond. While Walmart may not quickly double in value again, it's poised to deliver solid returns for patient shareholders over the coming years.
Enrichment Data:
Walmart's anticipated earnings for its February 2025 report include:
- Earnings Per Share (EPS): Analysts estimate that Walmart will report an EPS of $0.64, representing a 6.7% increase from the same quarter in the previous year.
- Revenue: The consensus estimate suggests a revenue range of $179.28 billion to $179.42 billion, indicating a 3.4% to 3.48% increase from the same quarter in the previous year.
These projections indicate that Walmart is likely to continue its strong financial performance, driven by its expanding product assortment, strong holiday-driven demand, and a value pricing strategy. Furthermore, the company's e-commerce platform, advertising segment, and rising membership income are expected to boost its overall financial performance.
Walmart's strong execution, operational momentum, and positive valuation metrics have contributed to its continued outperformance, with many analysts rating the stock as a "Strong Buy." These positive indicators suggest that Walmart's financial results in February 2025 are likely to further support its stock's upward trajectory, maintaining its position as one of the top-performing retail stocks in recent years.
In light of Walmart's impressive financial performance, investors may consider allocating their money or further investing in Walmart's shares, given the anticipated earnings growth and strong e-commerce sales. The company's value-focused approach has also proved attractive during periods of high inflation, making it an attractive option even during economically challenging times.
